April 28, 2020 | BY admin
On Friday, April 24th, President Trump signed a new bill providing a much-needed, additional $370 billion into the PPP and EIDL lending programs. Of the $370 billion, $60 billion is to replenish the Economic Injury Disaster Loan program, and $250 billion for the Paycheck Protection Program loans, with $60 billion set aside for community banks and community development financial institutions (CDFIs). While the initial round of funding under the CARES Act of $349 billion lasted for about a week before it dried up, this round is projected to last for just four to six days. Here’s what you need to know for a chance to receive these benefits:
PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS
We covered the Paycheck Protection Loan Program in detail in this article . Below is important additional information.
Hopefully, you have either made it through the mad-dash for the funds and had your loan approved or will get funded in this next round. With that in mind, here are our recommendations, based on currently known information, that gives you best the chance for maximum PPP loan forgiveness.
KEEP CLEAR RECORDS
We recommend using a separate bank account for the PPP funds to create an easy accounting trail. Maintain documents verifying the number of full-time equivalent employees on payroll as well as their salaries/wages for the period during which the loan was used to pay them. This could include payroll reports from a payroll provider, payroll tax filings, income/payroll/unemployment insurance filings from your state and paperwork that verifies retirement and health insurance contributions. In addition, have documents available that show payments of mortgage interest, rent and utilities.
MAKE NOTE OF THE TIMELINE
Funds must be spent within 8 weeks of receiving them. At the end of this 8-week period, you can apply for forgiveness through your bank.
ALLOCATE THE FUNDS CORRECTLY
At least 75% of the funds need to be used for payroll costs, with the maximum annual salary of $100k per employee. Forgiveness appears to be calculated on a cash-basis, which means accrued payroll due after the 8-week period will not qualify. This does not include the employer’s share of social security taxes. The IRS has agreed to defer the 6.2% employer share owed as of March 27, 2020, though the date on which the lender issues a decision on loan forgiveness.
The remaining 25% of the funds can be used for rent, mortgage interest (but not prepayments or payments towards the principal), utilities, continuation of healthcare benefits for those on leave, and interest payments on any debt obligation incurred before February 15th, 2020.
LOAN FORGIVENESS REDUCTION
To maintain 100% forgiveness, you will need to either keep your payroll as it was before February 15th, 2020 or during the same period in 2019, or hire back all laid-off employees, and undo wage reductions by the end of the PPP “covered period” on June 30th. The total amount forgiven will be reduced in proportion to the reduction in head-count, or wages decreased by more than 25%.
ECONOMIC INJURY DISASTER LOAN PROGRAM
The SBA will directly provide loans up to $2 million to small businesses and non-profits that have been severely impacted by COVID-19. An additional $60B has been made available in this last round. This is a good option for businesses with high non-payroll expenses. Here is how it works:
- Interest rates are 2.75% for nonprofits and 3.75% for businesses, with a maximum term of 30 years.
- Loans over $200,000 must be guaranteed by an owner with at least 20% interest in the company. We expect this requirement to be waived for schools.
- Eligible businesses can request an advanced grant up to $10,000, calculated at $1,000 per employee. This grant does not need to be paid back, even if your organization is denied the EIDL loan. Note that if you get an EIDL advance, and later apply for a PPP loan, the EIDL will be subtracted from the amount that gets forgiven.
- You can apply for this loan directly from SBA.gov
Note: At this moment the SBA is not accepting new applications and are only processing applications that were already submitted.
MAIN STREET LENDING PROGRAM
The Main Street Lending Program, an additional program created by the Federal Reserve, is a great alternative to the SBA programs which are running low in funds. This $600B program is designed to help banks give money more freely to businesses in need of a loan by purchasing a large portion of the loan from the bank, freeing the banks of most of the risk. The Federal Reserve will buy up to 95% of the loan from the bank, leaving just 5% with the bank that originated the loan. Here is how it works:
- The program is available to all businesses with fewer than 10,000 employees or with revenues of less than $2.5 billion.
- The term of these loans is four years, and loan amounts generally range between $1 million and $25 million. The loan amount is calculated as 4x earnings before interest, taxes, depreciation and amortization (EBITDA) less any debt. The minimum loan amount in $1 million.
- Interest rates on these loans will be anywhere from 2.5% to 4%, with a repayment term of four years.
- These loans cannot be used to pay off any other existing debt.
- Once you have a loan, there are several requirements you must meet. First, all efforts must be made to maintain payroll and retain workers through the pandemic and economic crisis. Second, you must meet all compensation, stock repurchase and dividend restrictions that apply to direct loans under the CARES Act. Finally, there are several salary restrictions for employees or officers making more than $425,000.
- This loan is available through your bank or local lender, and you are still eligible if you have made use of other SBA loans, such as the PPP.
We will continue to keep you informed as information becomes available. Please don’t hesitate to contact us with questions or concerns.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.
April 27, 2020 | BY admin
The novel coronavirus (COVID-19) pandemic has adversely affected the global economy. Companies of all sizes in all industries are faced with closures of specific locations or complete shutdowns; employee layoffs, furloughs or restrictions on work; liquidity issues; and disruptions to their supply chains and customers. These negative impacts have brought the “going concern” issue to the forefront.
One-year look-forward period
Financial statements are generally prepared under the assumption that the entity will remain a going concern. That is, it’s expected to continue to generate a positive return on its assets and meet its obligations in the ordinary course of business.
Under Accounting Standards Codification Topic 205, Presentation of Financial Statements — Going Concern, the continuation of an entity as a going concern is presumed as the basis for reporting unless liquidation becomes imminent. Even if liquidation isn’t imminent, conditions and events may exist that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern.
Management is responsible for evaluating the going concern assumption. Going concern issues arise when it’s probable that the entity won’t be able to meet its obligations as they become due within one year after the date the financial statements are issued — or available to be issued. (The alternate date prevents financial statements from being held for several months after year end to see if the company survives.)
Making the call
The going concern assumption is evaluated when preparing annual and interim financial statements under U.S. Generally Accepted Accounting Principles (GAAP). The evaluation is based on qualitative and quantitative information about relevant conditions and events that are known (or reasonably knowable) at the time the evaluation is made.
Examples of warning signs that an entity’s long-term viability may be questionable include:
- A reduction in sales due to store closures,
- A shortage of products and supplies used in manufacturing operations,
- A decline in value of assets held by the company,
- Recurring operating losses or working capital deficiencies,
- Loan defaults and debt restructuring,
- Denial of credit from suppliers,
- Disposals of substantial assets,
- Work stoppages and other labor difficulties,
- Legal proceedings or legislation that jeopardizes ongoing operations,
- Loss of a key franchise, license or patent,
- Loss of a principal customer or supplier, and
- An uninsured or under-insured catastrophe.
If management concludes that there’s substantial doubt about the entity’s ability to continue as a going concern, it must consider whether mitigation plans can be effectively implemented within the one-year look-forward period to alleviate the going concern issues.
Reporting going concern issues
Few businesses will escape negative repercussions of the COVID-19 crisis. If your business is struggling, contact us to discuss the going concern assessment. Our auditors can help you understand how the evaluation will affect your balance sheet and disclosures.
April 22, 2020 | BY admin
April 22, 2020 | BY admin
The law providing relief due to the coronavirus (COVID-19) pandemic contains a beneficial change in the tax rules for many improvements to interior parts of nonresidential buildings. This is referred to as qualified improvement property (QIP). You may recall that under the Tax Cuts and Jobs Act (TCJA), any QIP placed in service after December 31, 2017 wasn’t considered to be eligible for 100% bonus depreciation. Therefore, the cost of QIP had to be deducted over a 39-year period rather than entirely in the year the QIP was placed in service. This was due to an inadvertent drafting mistake made by Congress.
But the error is now fixed. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. It now allows most businesses to claim 100% bonus depreciation for QIP, as long as certain other requirements are met. What’s also helpful is that the correction is retroactive and it goes back to apply to any QIP placed in service after December 31, 2017. Unfortunately, improvements related to the enlargement of a building, any elevator or escalator, or the internal structural framework continue to not qualify under the definition of QIP.
In the current business climate, you may not be in a position to undertake new capital expenditures — even if they’re needed as a practical matter and even if the substitution of 100% bonus depreciation for a 39-year depreciation period significantly lowers the true cost of QIP. But it’s good to know that when you’re ready to undertake qualifying improvements that 100% bonus depreciation will be available.
And, the retroactive nature of the CARES Act provision presents favorable opportunities for qualifying expenditures you’ve already made. We can revisit and add to documentation that you’ve already provided to identify QIP expenditures.
For not-yet-filed tax returns, we can simply reflect the favorable treatment for QIP on the return.
If you’ve already filed returns that didn’t claim 100% bonus depreciation for what might be QIP, we can investigate based on available documentation as discussed above. We will evaluate what your options are under Revenue Procedure 2020-25, which was just released by the IRS.
If you have any questions about how you can take advantage of the QIP provision, don’t hesitate to contact us.
April 20, 2020 | BY admin
One of the many challenges of operating a not-for-profit organization during the coronavirus (COVID-19) pandemic is that just when you desperately need financial support, many donors are unable to help. Widespread unemployment, stock market volatility and general uncertainty make even dependable donors reluctant to part with their money.
Then there’s the fact that donors are receiving a staggering number of charitable solicitations right now. If your nonprofit doesn’t directly serve constituencies harmed by COVID-19, your appeals are likely to go to the bottom of donors’ piles. Here are some ideas for keeping your organization’s needs top of mind.
Avoid mass appeals
Now is generally not the time to make mass appeals for donations. If you do contact your entire mailing list, use the opportunity to express concern for your supporters’ well-being and to update them on how your organization is faring under the circumstances. Also let donors know that charitable donations made in 2020 are deductible up to $300, even if donors don’t itemize.
To keep supporters engaged, stay on top of your social media accounts. Use Twitter, Facebook and other platforms to announce program suspensions and reopening dates and to share success stories — either recent or, if your nonprofit is temporarily closed, from the past.
Reach out to significant donors in person. Obviously, face-to-face meetings are out of the question, so give major supporters a phone call or arrange for a videoconference. Be sensitive to donors’ financial challenges and prepare to be flexible. If donors express the desire to help but can’t commit to an amount right now, suggest they might want to make a multi-year gift or include your nonprofit in their estate plans.
Donors might also be able to provide your group with professional services — such as PR expertise or legal advice — or be willing to contribute an item to an online fundraising auction. It’s a great time to learn more about major donors and ask them how they want to help, now and in the future. You may be surprised by their answers.
Chances are these supporters are well established in the community and have friends and colleagues they can introduce to your nonprofit. If these well-connected donors aren’t already on your board, invite them to become members — or ask them to chair a future event.
Resist the temptation
Although you may be tempted to throw yourself on the mercy of donors, desperate appeals may not be wise right now. Donors generally want to invest in fiscally sound nonprofits that will be around for the long haul. So long as your nonprofit has adequate operating reserves and a contingency plan, you should be able to weather the current storm. Contact us if you need help getting over any hurdles in the meantime.