Backend Category: Coronavirus

The CDC recently reported that airborne transmission of SARS-CoV-2 can occur in rare cases under just the right circumstances. In most cases, the virus is transmitted from one person to another in droplet form, and occurs when affected individuals are less than six feet away from the source for 15 minutes or more. That’s because the “droplets” are heavy enough to fall to the ground, and do not stay suspended in air. However, new research indicates that when exposure occurs in enclosed spaces, exposure time is greater than 30 minutes, and some kind of expiratory exertion is taking place, such as shouting, singing, or exercising, the virus can be transmitted in aerosol form (smaller particles suspended in air). Social distancing, use of masks, hand hygiene, surface cleaning and disinfection, ventilation, and avoidance of crowded indoor spaces are effective protective measures for both forms of transmission. However, adequate ventilation and avoidance of crowded indoor spaces are especially important when work is being performed in enclosed spaces where circumstances can increase the concentration of suspended small particles carrying the infectious virus. If you believe your workers could be exposed to airborne transmission of the virus, MCAA recommends that you revise your COVID-19 Exposure Control Plan to ensure adequate ventilation and avoidance of crowded indoor spaces in affected work areas.

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As the very public debate in Congress regarding another stimulus bill rolls on, Withum wanted to share an update issued late last week by the SBA, in conjunction with the Department of Treasury. With lobbying groups, lenders, and borrowers long-since advocating for a more simple forgiveness process, specifically for smaller loans, the SBA took this into their own hands late last week, as they released a new interim final rule (“IFR”). Because they are required to work within the confines of the current statutes, the consequences of this interim final rule are not as far reaching as proponents for a simpler forgiveness process would like, but it’s certainly a movement in the right direction. Here are the highlights:

New Application Form and Simplification for Loans under $50,000: In the release of the IFR, the SBA granted a de minimus exemption that all borrowers who have loans under $50,000 (provided that they do not, with affiliates, exceed $2M) would be exempt from any reductions in the loan forgiveness amount based on reductions in full-time equivalents or reductions in salaries/wages. This is welcomed news to these borrowers. The SBA also released the Form 3508S, a much more simple version of the Form EZ previously issued, which just asks the borrower for the bare minimum of requirements – loan information, forgiveness amount, and for the borrower to sign the certifications. While this is welcomed news to borrowers, the statutes of the CARES Act still require that forgiveness is not to be issued unless supporting documentation supporting the expenditures is provided, and there was no change to this rule offered by the SBA. Borrowers who utilize this form are still required to submit the supporting documentation for their expenditures, ultimately supporting the amount claimed for forgiveness. Further, the IFR clarifies that lenders are required to complete the following when in receipt of such application: 1) confirm receipt of the certifications, 2) confirm receipt of the documentation required to be submitted. It clearly indicates that the borrower is responsible to provide an accurate calculation of the loan forgiveness amount. 

With 3.57 million outstanding PPP loans totaling $62 billion in funds, this is set to simplify the process for about 12% of the PPP funds distributed. Withum expects that lending institutions will need some time to update their systems to allow for these applications, so borrowers who fit this mold will likely need to wait a couple more weeks to apply for forgiveness if they desire to use the new form.

Changes to the Lender Review Process for All Loans: In addition to the above, the IFR also amended lender responsibility with respect to reviewing documentation from submitted borrowers. In response to what appears to be an overwhelming number of borrowers submitting applications with documentation of eligible payroll and non-payroll costs in excess of the loan amount, lenders responsibilities are now adjusted such that they are only required to confirm the borrower’s calculation and review the required documentation up to the amount of the request forgiveness amount. Although we cannot be sure how each lender will approach/implement this guidance, it stands to increase the speed with which loans are being processed if utilized. 

What Else is Going on in Congress? Since the IRS published Notice 2020-32, disallowing deductions for expenses that were forgiven under the PPP, Congress members have spoken publicly about how this notice was not in line with the intentions of the CARES Act. On October 1, the House passed an updated Heroes Act which contained language allowing such deductions, marking the first time we have seen any legislation overturning the IRS notice make any headway. Based on what has transpired since that date, we know that the Heroes Act, in it’s current form, is very unlikely to be signed into law, however inclusion of language in this regard is encouraging nonetheless. 

Also at the forefront of these discussions are additional appropriations for the PPP funds. At the very least, the White House has signaled that they would be amenable to redeploying the nearly $130B of unused appropriations for the PPP, and Congress members on both sides of the aisle have indicated they are favor of a PPP v2. The most solid proposal we have seen to date is within the updated Heroes Act, which includes a second round of loans, utilizing the same formula as the first round, to eligible ‘smaller businesses’ of 200 employees or less who can also demonstrate a 25% reduction in revenues in either Q1, Q2 or Q3 as compared to last year. The maximum size loan under this proposal would be $2M. Eligibility under alternative size standards and how the affiliation rules would be applied are not clear at this time.

The Alston & Bird Health Care Group details how changes by the Centers for Medicare & Medicaid Services to the AAP loan program delays repayment obligations for all health care providers and suppliers that received AAP loans during the COVID-19 pandemic.

September 28, 2020

Good afternoon,

I hope this email finds everyone safe and healthy. This year has certainly challenged us all. COVID-19 has forced us all to change and adapt, to re-invent the way we provide services and resources and change the way we learn. Thanks to your MCAA Officers, Board of Directors and dedicated national staff, MCAA has not skipped a beat. Considering the safety of MCAA members, the association and our industry partners, it was decided that the MCAA 2021 Annual Convention will be cancelled due to the impacts of COVID-19.

What does this mean for MCAA members and our industry partners? Instead, MCAA will hold the first MCAA Virtual Education Conference. This conference will feature top quality education seminars, a virtual trade show/exhibit, our annual business meeting, student chapter competition, safety awards and scholarship presentations and the annual changing of the guard. The MCAA Virtual Education Conference will be held March 22-25, 2021.

This four-day educational experience is not a substitute for our convention as nothing can compare to actually being together. Until we can be together, safely, the MCAA Virtual Education Conference will provide MCAA members with what they have come to expect, top quality education that will aid and enhance their businesses. Keep an eye out for more information during the next few months as the plan and vision come together. I hope that everyone and their families stay safe and healthy. I look forward to when we can all get back together and celebrate our MCAA family in person.

Take care,

Timothy J. Brink
CEO

PPP Loans – Disallowance of Expense Deductions: Withum is getting a lot of questions regarding the denial of tax deductions relating to PPP loan forgiveness. As you may recall, cancellation of debt relating to the PPP loan is not taxable income. While that is the case for the loan itself, the amount forgiven actually ends up being fully taxable because the IRS issued Notice 2020-32 to disallow the tax deductions (expenses) that gave rise to the loan forgiveness. Here is a link to a Withum article on the Taxation of PPP Loans and Loan Forgiveness. Thus, taxpayers should expect more taxable income as they will have less deductible expenses in 2020 than are reflected on their internal books and records.

This also has caused some fiscal year-end borrowers to consider whether they can choose which deductions to disallow so they can defer the taxation of the loan forgiveness amount until a later tax year. 

Consider this example: a borrower obtained a PPP loan 8 weeks before the end of its 2020 FYE. If it obtains loan forgiveness based on the first 8 weeks of covered expenses, then those expenses would be disallowed and the loan forgiveness amount would be taxable in 2020. If, however, the borrower can disregard the first 8 weeks of expenses and rely only on the last 16 weeks of covered expenses paid or incurred during the covered period, then it could defer the expense disallowance, and therefore the taxation of the loan forgiveness amount until 2021. There is no guidance on this issue from the IRS or from the SBA, and while there are reasonable arguments to be made both ways, we cannot recommend borrowers take this position because eligibility for loan forgiveness is based on “the sum of” the covered expenses paid and incurred during the covered period, according to section 1106(b) of the CARES Act.

Could Deductibility of PPP Expenses Change?  Many have speculated that denying tax deductions for PPP loan recipients was not the intent of the program.  Several members of Congress have indicated that they intend to pursue legislation that would allow for all PPP related expenses to be deductible in order to avoid having small businesses deal with an unexpected tax bill after such a difficult year.  Even though at least one bill to restore the deductions has been proposed, at this point no agreement has been reached, so taxpayers need to proceed assuming that no change is coming.  That said, it is possible that we could see this addressed in an upcoming stimulus bill ….stay tuned.

Reminder Section:  (what should I be doing):

• Talk to your lender to find out when its PPP loan forgiveness application portal will be ready.
• Talk to your payroll company about claiming the employer payroll tax deferral and employee retention credits (ERC) that were made available in the CARES Act.
• Talk to your payroll company about claiming the qualified sick/family leave refundable tax credits (from FFCRA, passed prior to the CARES Act).

Please see the most-recent DEWALT Newsletter with a LinkedIn Live event scheduled for this Wednesday, September 16 in support of SAFETY WEEK.

MCAA’s Model COVID-19 Return to Work Exposure Control Plan was again revised to address changes to CDC guidance and add additional COVID-19 safety resources to the plan. MCAA recommends that you evaluate these changes to ensure that your company’s program is current.

Revisions were made to the actual MCAA Model COVID-19 Return to Work Exposure Control Plan and to the accompanying documents, including:

1. The addition of the Temperature and Symptom Screener Training PowerPoint with accompanying instructor notes;
2. Changes to COVID-19 symptoms;
3. Changes to discontinuing isolation protocol;
4. Definition of “Prolonged Period”;
5. Changes to temperature and symptom screening protocol; and
6. Changes to PPE requirements for screeners.

The following resources can be found in the RESOURCE CENTER and below:

MCAA Model COVID-19 Return to Work Exposure Control Plan & Checklist

MCAA COVID-19 Regulatory & Legal Guidance

MCAA Model COVID-19 Return to Work Exposure Control Plan Questionnaires – Jobsite Screening and Company Screening Questionnaires

MCAA COVID-19 Return to Work Employee Safety Training PowerPoint & Instructor Notes

MCAA Model COVID-19 Return to Work Exposure Control Plan Test & Answer Key

MCAA COVID-19 Temperature and Symptom Screener Training PowerPoint & Instructor Notes

MCAA partner Adele Abrams has released the Law Office of Adele Abrams Newsletter dated August 20, 2020. The latest newsleter includes articles on OSHA Use of NWS Chart for Heat Stress Invalidated and Updates Affecting Marijuana in the Workplace.

As many buildings are preparing to reopen during this pandemic, the ASHRAE Epidemic Task Force has updated its reopening “Building Readiness” guidance for HVAC systems to help mitigate the transmission of SARS-CoV-2. Specific updated recommendations to the building readiness guidance include the following: Pre- and Post- Flushing Strategy, Energy Recovery Ventilation (ERV) Systems Operation, and Building Readiness Modes of Operation for the Building.

Alston & Bird have released their August 17 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Final PPP Statistics:  As many of you know the PPP loan program is officially closed, it is certainly possible that it can be extended via the next stimulus bill, however that has been delayed and it is unclear what changes to the PPP (if any) will come as a result of the bill and when. The SBA has been consistently publishing PPP loan statistics, and this link provides what is effectively the “final” results as we know them. Some general observations:

• $133 billion of funds allocated to the program went unused.
• NY, CA and TX were the largest recipients of loans.
• Over 87% of the total loans issued were below $150k.
• Chase, BOA and PNC were the top three lenders (by dollars).
• Healthcare, professional services and tech were the top three beneficiaries (by dollars).

New Clarifications/FAQs on How to Calculate Forgiveness: The SBA released new FAQs recently, Withum has written an in-depth analysis on each one within this article. The FAQs do not present major shifts in how we view the mechanics of forgiveness but do help provide further detail and clarity on topics such as how to calculate the maximum forgivable salary for owner/employees based on entity type (LLC, S-Corp, C-Corp and how to account for benefits paid within and outside of the covered period among other topics. As borrowers begin working on their applications, understanding these nuances is important. 

PPP and M&A: Withum often gets questions regarding how the sale or a business or the acquisition of another entity may impact a borrowers PPP loan and ability to obtain forgiveness. Withum has put together an article addressing some of the complexity that may arise from these transactions, as well as how they impact the employee retention tax credit.

Reminder Section:  (what should I be doing):

• Talk to your payroll company about claiming the employer payroll tax deferral and employee retention credits (ERC) that were made available in the CARES Act.
• Talk to your payroll company about claiming the qualified sick/family leave refundable tax credits (from FFCRA, passed prior to the CARES Act).
• Consider speaking with your lender to discuss changes to terms of existing debt facilities.
• If you have already received a PPP loan, start forecasting how you intend to spend the funds and how you can qualify for the highest amount of loan forgiveness possible. If you are not forecasting 100% loan forgiveness, then most likely you should seek assistance regarding your particular situation. Withum believes the vast majority of borrowers should expect and plan to receive 100% loan forgiveness.

On August 4, 2020, the Small Business Administration (SBA), in conjunction with the Treasury Department, released 23 frequently asked questions (FAQs) regarding loan forgiveness under the Paycheck Protection Program (PPP).

The FAQs, released approximately one week ahead of the SBA’s opening its loan forgiveness application portal, covers general questions surrounding the process and the type and amount of costs that can be included in the loan forgiveness application. Some of the FAQs confirm previously-stated positions and represent logical extensions of prior guidance, and others contradict prior guidance.

This article focuses on the most salient points of the FAQs and highlights the departures from prior SBA guidance or prevailing interpretations.

General Loan Forgiveness FAQs

• Sole proprietors, independent contractors and self-employed individuals with no employees can use the EZ loan application.
• Borrowers are not required to make loan payments prior to their receipt of a decision on their loan forgiveness application, provided they the application is filed within 10 months of receipt of the loan. Interest accrues from the date of receipt of the loan, but only on the part of the loan that is not forgiven.

Payroll Cost FAQs

• There is no change to the paid or incurred rule as applied to payroll costs.
  • Paid – payroll costs that are incurred prior to a borrower’s covered period (CP) but paid during the CP are includable.
  • Incurred – payroll costs that are incurred during the CP but paid on or before the next regular payroll date after the end of the CP are includable.
• Cash compensation is determined using gross payroll amounts. For purposes of the $100,000 annualized limitation on cash compensation, all forms of cash compensation should be considered, including wages, tips, commissions, bonuses and hazard pay.
• Employee group health care costs are includible to the extent paid by the employer during the CP for coverage during the CP, but not for coverage outside the CP. This narrowing of the “paid” rule contradicts prior SBA guidance and creates a difference in the treatment between cash compensation and employee group health care costs.
• No forgiveness will be provided for retirement benefits accelerated from periods outside the CP. This too represents a narrowing of the “paid” rule and contradicts prior SBA guidance.
• The FAQs confirmed prior guidance that the maximum owner compensation amount for a 24-week CP is $20,833 in total across all businesses, but it added that borrowers are free to choose how to allocate such amount among their businesses.
• Changes were made to the calculation of the owner compensation limits by business type. Below are the new rules.
  • C Corporations: cash compensation relating to a C corporation’s shareholder/employees is limited to 2.5 months of their 2019 cash compensation (for a 24-week CP), subject to a cap of $20,833. The corporation also is eligible for forgiveness on its group health care costs, state/local employment taxes, and retirement contributions capped at 2.5 months of the 2019 retirement contribution amounts.
  • S Corporations: cash compensation relating to an S corporation’s shareholders/employees is limited to 2.5 months of their 2019 cash compensation (for a 24-week CP), subject to a cap of $20,833. The corporation also is eligible for forgiveness on its state/local employment taxes, retirement contributions capped at 2.5 months of the 2019 retirement contribution amount, and health care contributions for owners owning less than 2% of the stock of the S corporation (or family members of such owners). Group health care costs are not eligible for forgiveness for owners or for family members of owners holding at least 2% of the S corporation’s stock.
  • Self-Employed Schedule C (or Schedule F) Filers: forgiveness is capped at 2.5 months of 2019 net profit as reported on Schedule C, line 31. No forgiveness may be obtained for group health care costs, retirement contributions, or state/local employment taxes.
  • General Partners: forgiveness is capped at 2.5 months of 2019 net earnings from self-employment (on Schedule K-1, box 14a) multiplied by .9235, and payment of this amount must be made during the CP. No forgiveness may be obtained for group health care costs, retirement contributions, or state/local employment taxes. The partners’ 2019 Schedules K-1 must be submitted along with the partnership’s loan forgiveness application.

If you have any questions regarding the loan forgiveness process, please contact a member of Withum’s SBA Financial Assistance Services Group.

Nonpayroll Cost FAQs

• There is no change to the paid or incurred rule as applied to nonpayroll (i.e., overhead) costs.
• No change to the definition of a covered mortgage in the CARES Act, but the FAQs state that interest on an unsecured line of credit is not eligible for forgiveness because the loan is not secured by real or personal property.
• The renewal of a lease that was in place prior to February 15, 2020, will not affect loan forgiveness for the rental payments on such renewed lease.
• Additional color is provided to the previous guidance that “transportation” expenses include gasoline for a borrower’s vehicle. The FAQs provide that “transportation” expenses include transportation utility fees assessed by state and local government.

Headcount and Wage Reduction FAQs

• The SBA previously announced a safe harbor with regard to headcount reductions where the employer made an offer of reemployment that was rejected by an employee. The FAQs add that borrowers must demonstrate both an inability to hire similarly-qualified individuals on or before December 31, 2020, and that they informed the relevant state unemployment office of the offer within 30 days of the employee’s rejection of the offer.
• With regard to salary/wage reductions, the FAQs reiterate that the borrower should only take into consideration decreases in salaries and wages, and not additional compensation such as bonuses, commissions, etc.

The FAQs provide additional guidance for borrowers, but hopefully Congress acts to further limit the loan forgiveness process either by eliminating the requirement to apply for certain loan sizes or by further streamlining the application process. Unless it does, the SBA plans to open its loan forgiveness application portal in the next few days. To the extent borrowers are left to make reasonable assumptions about the operative rules, we continue to encourage full disclosure as part of the loan forgiveness application process.

Alston & Bird have released their August 10 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Alston & Bird have released their August 3 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.