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Be Right About Free Money: Potential Legal Risks of the Paycheck Protection Loan Program

Wed, 15 Apr 2020 18:55:00 GMT

One of the most important provisions of the CARES Act for small businesses is called the Paycheck Protection Program (PPP). The PPP is a $349 billion program designed to assist small businesses (fewer than 500 employees) facing financial difficulties as a result of the COVID-19 pandemic through specifically structured loans.

The loan program offers funding to cover payroll for up to eight weeks, with the intent of stemming unemployment. These loans can be forgiven and essentially become a grant if your business meets certain criteria with no need to repay the money.

As the old saying goes, there’s no such thing as a free lunch – or in this case, free government money. There are potential legal risks that could jeopardize the forgivability of the loan.

Conditional Grants

Another way to look at the PPP loans is as conditional grants. The U.S. Small Business Administration (SBA) notes that loans will be forgiven in full if the funds are used for appropriate costs. Covered costs include payroll, mortgage interest, rent, and utilities. Further, the payroll costs must account for at least 75 percent of the loan proceeds used. The employer needs to maintain or quickly rehire employees and maintain wage and salary levels in order to receive 100 percent forgiveness.

The Devil’s in the Certification Details

The loan application process requires certain certifications. Businesses that are still operating need to certify that the current economic uncertainty makes the loan necessary to keep operations going.

If this seems vague, it’s because it is. There probably isn’t a small business out there that is not facing significant uncertainty in the current climate. The problem is that the certification standard the PPP lays out is extremely subjective. As a result, with the encouragement for businesses to apply, many may do so under the impression that they will have their loan fully forgiven to only run into trouble later if they don’t meet the certification standards.

Legal Risks

By not providing any definition about the nature or extent of the required impact to operations that would make the loan request “necessary to support ongoing operations,” the SBA is making both applicants and lenders apprehensive.

Some law firms are even warning clients via their newsletters about potential legal exposure under the False Claims Act (FCA). Legal counsels are cautioning that a misrepresentation included in an application could result in FCA liability. Businesses must navigate between being as aggressive as possible to bolster their application while staying within the rules of the program.

More Certification Guidance is Needed

The government agencies involved need to provide more clear and objective guidance on the conditions needed to meet the certification requirements of the loan application process. Without clear and definable guidance as to what constitutes facing economic uncertainty, small businesses could face problems in the future.

Objective criteria such as a percentage of revenue decline or order capacity would provide a rather bright-line test and give both guidance to businesses and confidence in the process.

Please contact your tax professional for more guidance.

Answers to Common Questions About the Coronavirus Stimulus Checks

Wed, 15 Apr 2020 18:44:00 GMT

So many checks and even more questions! There is a lot of confusion out there over the details surrounding the coronavirus stimulus checks, so below we've compiled a list of frequently asked questions and answers.

How much will the check be for? Each adult will receive $1,200; if you filed as married jointly, you'll get $2,400; with an extra $500 for each qualifying child.
What if I didn’t make any money last year or I was on a reduced income? It doesn’t matter. There is no minimum income threshold you need to pass to qualify. However, if you did not file an income tax return for the 2018 or 2019 tax year, you’ll need to provide your information at the following link so the IRS knows where to send your stimulus money:

https://www.freefilefillableforms.com/#/fd/EconomicImpactPayment

I heard that if I make too much money, I won’t receive a check? On the other end of the spectrum, there are income limits based on your tax filing status. If you are single and made more than $75k, married and earned more than $150k, or a head of household with more than $112.5k in adjusted gross income, your stimulus check amount will start to phase-out, and many above these incomes will not receive anything.
My income is under the threshold in 2018 but over in 2019. What are my options? In this case, you can wait to file your 2019 return and qualify to receive the check based on your 2018 tax return. This is easy to do this year given the automatic extensions granted for federal income tax returns.
In 2020, my income is going to be higher than in 2019 and put me above the thresholds. Will I have to pay back my stimulus check? No, there is no claw-back provision in the law, so you won’t have to pay it back.
Is my check taxable? No, it is not taxable income.
I didn’t need to file a tax return in 2018 or 2019 because my only source of income is Social Security Disability Income (SSDI) and my income was limited; do I have to file a return now to get a check? SSDI recipients don’t need to file a return or take additional action. Their checks will be direct deposited or sent via mail – the same way they normally receive their benefits.
I have a child in college who I claim as a dependent. Will either of us get a check? If your child is 18 years or older at the end of the tax year, you aren’t eligible for the $500 check due to his age – even if you claim him as a dependent. Your child likewise won’t get his own check since you claim him as a dependent – even if he works. There is a proposal to change this, but nothing firm currently.
What about a senior parent whom I claim as a dependent? The same rules as above apply, so no. In order to get the $500 check per dependent, the person must both qualify as a dependent and meet the age requirement. Similarly, the senior parent cannot get his own check since you are claiming him as a dependent.
We had a child in 2020. Will I receive a check for this child? Most likely not since the IRS would have no record of your new qualifying dependent based on your 2019 return.
How soon will I receive my check? The government is planning on processing and sending out checks as soon as possible. Based on what the U.S. Treasury has said, as soon as possible means starting to process taxpayer information in April. How soon you’ll receive your money after this depends on whether you’ve set up direct deposit with the government in the current or previous year tax filings. For taxpayers who don’t have direct deposit set up, go here to input your information so the IRS knows where to send your stimulus money:

https://www.freefilefillableforms.com/#/fd/EconomicImpactPayment

I heard I can get my stimulus check faster if I pay to have it processed. Is this true? No, and beware because this is a scam. There is no legitimate way to skip to the head of the line.
What happens if I owe the IRS back taxes? The stimulus checks are generally exempt from seizure for existing tax debts. This includes if you are on an installment payment plan to settle a tax bill. The one exception to this possibly could be for child support in arrears.

IRS Source for Non-Filer/Direct Deposit Information:

https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here

New to Remote Working?

Wed, 01 Apr 2020 14:04:00 GMT

New to Remote Working? Here Are Some Tips for Staying Productive

What's New in Technology

April 2020

The COVID-19 pandemic has seen a rise in remote working. Even organizations that have always been against it have their employees working from home. With some areas experiencing complete lockdowns, this means you find yourself in an unfamiliar work environment.

Remote working means that you have to work outside a traditional office environment. Although some people already have experience working remotely, there are a good number of workers who might have a hard time getting anything done from home. This is particularly true for those with a family that includes young children.

But with the current epidemic, many don’t have much choice other than to agree with the concept that work doesn’t have to be done in a specific place to be performed successfully. Your employer may have already set a work-at-home policy, but how do you ensure you are productive? Here are a few tips to help you retain your employment.

Create a Workspace

If you don’t already have a home office, then it’s time to be resourceful and create a workspace. Unfortunately, since this is unplanned, you might not have an ergonomically friendly work area. This means you could hurt yourself while working; for example, sitting too long in an uncomfortable position. But think outside the box and utilize what you have, such as using pillows to create a comfortable posture. Also, ensure you take frequent breaks.

Don’t forget to choose a space with minimal distractions.

Establish a Routine and Stick to It

The fact that you no longer have to wake up early to get to the office might tempt you to sleep more. It is important to have a work mindset. To achieve a sense of normalcy that you were used to in the office, you need to plan a schedule for your work hours and stick to it. Failure to create a work routine may find you wasting work hours.

Remember, if you live with family or friends, let them know your work hours and have them respect that.

Be Flexible

It’s important that you be flexible, especially if you have kids in the house. This makes it hard to work a 9 to 5 job. A lockdown means you probably do not have someone to come over and help with chores or childcare. The way out is to experiment with different plans. Try working late at night, early in the morning or when your children take a nap.

Use Time Management Apps

Your employer already set goals and roles for you. But achieving them while working at home is challenging. Use time management apps to track the amount spent working on tasks. Such apps, whether web or mobile-based, can help minimize distractions.

Avoid Social Media

There is so much information on the coronavirus pandemic and there is a need to stay updated. But this can turn out to be a distraction that causes you to miss out on work time. Set a time to check such updates and stick to it.

Informal Communication Groups

Apart from official online meetings or discussions, it’s good to keep in touch with colleagues. If your company did not set up such meetings, then you should. There are many communication tools available today that you can use. Keep in mind, isolation can lead to depression, especially if you live alone and are used to an active social life.

Work-Life Balance

Don’t spend all of your day working. Set daily tasks and stick with them. Set a time to exercise; it’s good for productivity and helps you avoid getting sore, which will generally affect your health. Log off from your work and do a different activity.

Use Secure Connections

Cybercriminals are now more likely to target remote workers. There are already reported cases of coronavirus ransomware and malware. This not only affects your work but can put your company at risk. Ensure that you use a secure wifi and virtual private network (VPN). Most importantly, don’t ignore your company’s security policies just because you are working from home.

Final Thoughts

There is a lot of debate surrounding remote working. Employers may see the benefit of remote working and adopt it more. Whether this will be the case, only time will tell. But we should brace for unexpected changes in the workplace when things finally get back to normal.

The most important thing right now is to keep in mind that your productivity will depend on your self-discipline, time-management skills, technology skills (to use new apps) and adaptability.

CARES ACT

Fri, 27 Mar 2020 19:26:00 GMT

CARES Act - Coronavirus Aid, Relief, and Economic Security Act

General Business News

April 2020

U.S. Government Provides Relief to Individuals, Businesses in Midst of COVID-19 Crisis

On March 27, President Donald Trump signed into law a historic $2 trillion stimulus package designed to provide economic relief to individuals and businesses affected by the coronavirus pandemic.

Our aim in this alert is to give a brief overview of both the tax and non-tax provisions of the government’s new stimulus legislation, including what type of assistance is available for individuals and businesses, how to apply for it, and what to do if you become unemployed. The summary is divided into two sections, one for individuals and one for businesses.

Individual Provisions

Stimulus Payments: Amounts and Eligibility

Most adults will receive $1,200; each qualifying child under 16 years old will receive $500.
- The amount you receive is based on your tax filing status and reported adjusted gross income (AGI).
  - Single filers with an AGI of $75k or less will receive the full $1,200; with a full phase-out at $99k
  - Married filers with an AGI of $150k or less will receive the full $2,400; with a full phase-out at $198k
  - Heads of households with an AGI of $112.5k or less will receive the full $1,200
Having qualifying children will increase the phase-out threshold slightly for all groups
Those claimed as a dependent by another taxpayer will not receive any stimulus money
Recipients need to have a legitimate Social Security number to receive payment, except for military members
Currently there is only one stimulus payment scheduled; however, there has been discussion of additional future payments

Proof of Income

If prepared, your 2019 tax return is the basis of your eligibility; if not, use your return from 2018
If you still have not filed for 2018, you can use a 2019 statement from the Social Security administration as proof of income to qualify

Applying for the Payment and Receipt

If the IRS has your bank information from prior tax filings, then you don’t need to do anything. The money will simply be direct deposited into your account based on already filed income tax information
Most people should expect to receive the money approximately three weeks from the bill’s passage date

Other Considerations

Unemployed persons are eligible to receive payments
You will not need to pay income tax on these payments
Generally, this payment is exempt from all forms of wage garnishment; however, not in all cases for child support garnishments

Unemployment Benefits: Who is Covered?

The bill expands eligibility for unemployment benefits, including part-time and self-employed workers
Self-employed persons are newly eligible for unemployment benefits and their benefit is calculated based on previous income using a formula from the Disaster Unemployment Assistance program
Part-time worker benefits are state dependent

Amount of the Benefit

Unemployment benefits still vary by state, but generally the bill aims to compensate for the average worker’s paycheck by providing extra payments to cover the gap between traditional state unemployment and actual wages
Eligible workers can get as much as $600 per week in addition to their state benefit; this includes self-employed and part-time workers
States are free to pay the whole amount at once or send the top-up portion separately

How Long Will It Last?

The bill provides an additional 13 weeks on top of whatever each state already provides; however, unemployment benefits cannot last more than 39 weeks total
- Those already receiving unemployment benefits are still eligible for the 13-week benefit extension as well as the $600 weekly benefit top-up
The incremental $600 payment is only good for up to four months, through the end of July

Other Considerations

Coverage also extends to those who can’t work because they are required to self-quarantine and people unable to travel to work because of imposed quarantine restrictions
If the main household earner dies as result of the coronavirus, the survivor is eligible for their unemployment benefit
People who can work from home or are already receiving paid sick or family leave are not eligible

Student Loans

For six months (April 2020 to September 2020) there is an automatic suspension of student loan payments for loans held by the federal government (private loans excluded)
- You may choose to keep paying down the principal if you desire

Retirement Account Rule Changes

For 2020, the minimum distribution requirements on IRAs, 401(k), 403(b) plans, etc. are suspended
- This is not applicable to pensions
Up to $100k may be withdrawn early without being subject to the typical 10 percent early withdrawal penalty; and income taxes owed on withdrawals may be spread over three years from the date of distribution
- To qualify for these exemptions, you need to prove the need was related to the COVID-19 outbreak, which includes if you, your spouse or a dependent tested positive for the virus or if you suffered adverse economic costs due to the COVID-19 crisis
Loan limits on workplace retirement plans (401k, etc.) are doubled, allowing participants to take loans of as much as $100k if they can prove they’ve been affected by the pandemic

Charitable Contributions

The bill creates a new charitable deduction of up to $300 available for those who can’t itemize their deductions for donations to qualified charities
The limit on charitable deductions (those that are itemized) are increased, allowing donors to deduct up to 100 percent of donations against 2020 AGI. For example, if you have $1.3 million in income, you can donate $1.3 million and deduct the entire amount
- Only cash gifts to public charities qualify; you cannot donate stocks or gift via private foundations to be eligible

Miscellaneous Provisions: Renter’s Relief

The law puts a temporary 120-day nationwide stop to evictions if the landlord has a mortgage from a governmental agency, such as Fannie Mae, Freddie Mac and others. Additionally, landlords are not allowed to charge penalties for delinquencies during this period.

Business Provisions

Charitable Deductions

The 10 percent limitation on charitable donations is increased to 25 percent of taxable income

Qualified Property Improvements

Businesses will have the option to write off costs that are typically only depreciable over a 30-year period, especially businesses in the hospitality industry

Small Business Administration (SBA) Loans

Small businesses and non-profits that have 500 employees (full- and part-time) or fewer are eligible to receive SBA loans of up to $10 million
The loans may be used to cover the cost of payroll, paid leave, group health benefits, mortgage and rent payments, utilities and interest on other debts
No collateral or personal guarantees are required

Employee Retention Credit

Employers are eligible for a payroll tax credit of up to 50 percent of wages paid during the COVID-19 crisis, which is defined as March 13, 2020, through the end of the year, up to a maximum credit of $5,000 per employee
The credit is limited to employers whose operations have been suspended due to the virus outbreak or whose gross receipts have fallen by more than 50 percent compared to the same quarter in the prior year

Payroll Tax Deferral

Employers can defer their 6.2 percent portion of the FICA tax (Social Security portion only), delaying payment over two years with 50 percent due in 2021 and the other 50 percent due by 2022.

Net Operating Loss (NOL) Changes

The Tax Cuts and Jobs Act disallowed the carryback of NOL completely; and before this in 2018, only a two-year carryback was allowed. This bill allows a five-year carryback for losses from 2018, 2019 and 2020; and taxpayers can amend prior year’s returns as well.
The 80 percent limit on NOLs for these same years is removed, allowing a 100 percent reduction in taxable income.

Business Interest Expense Deductions

Business interest that falls under Section 163(j) gets an increased deduction limit from 30 percent to 50 percent of taxable income for 2019 and 2020.
2019 taxable income can be used to calculate the interest limitation for 2020 if it’s more favorable
- The above is not applicable to partnerships