Tag Archives: Sarasota

Responding to a Tenant’s Request to Defer or Abate Rent Due to COVID-19

Given widespread financial hardship due to COVID-19, commercial landlords are receiving requests for relief from tenants unable to pay the next month’s rent. Legally, landlords are probably justified in refusing to abate or defer rent, though this issue is far from settled and ripe for future litigation.

A tenant in this situation has two likely arguments for seeking rent deferral:

  1. force majeure clause in the lease (one that provides both parties relief from obligations upon events such as natural disasters, war, and acts of God); and
  2. Frustration of Purpose (a legal doctrine excusing a party from performing its obligations under a contract if it is prevented from acting due to an unforeseen event).

As lease disputes arise, it is possible that these arguments convince courts—potentially sympathetic to tenants who have not been able to pay rent during the COVID-19 emergency—to grant an abatement or deferral of rent. To add more uncertainty for landlords, Sarasota County’s Clerk of Court, relying on an order last week from the Supreme Court of Florida, has temporarily stopped issuing writs of possession (the final orders in an eviction lawsuit[1] necessary for removing an evicted tenant).

As long as the Clerk of Court takes this position, landlords will be prevented from promptly evicting delinquent tenants.[2] Given these obstacles, and considering landlords have a vested interest in ensuring the long-term success of many of their tenants, landlords should consider creative solutions when responding to a tenant’s request for relief. Below are options a landlord can consider in this situation:

  1. Refuse any abatement or deferral. This approach may only be viable for financially strong tenants, or those with whom the landlord has little long-term incentive to cooperate (e.g., tenants with a poor payment history, or who will be moving locations soon, or permanently closing their business). Also, a landlord may have more leverage to take this position for leases that do not contain a force majeure.
  2. Require tenants apply for assistance under the CARES Act or other emergency assistance programs. The recently enacted CARES Act allows small businesses to apply for assistance from the Small Business Administration. Certain tenants may also be eligible for the Florida Small Business Emergency Bridge Loan Program. Landlords can request eligible tenants apply for this assistance, and pass it on to the landlord in the form of continued rent payments.  Alternatively, landlords might want to require this assistance as a condition to deferral of rent payments under Options #3 and #4, below, to ensure that the tenant will have sufficient cash to continue to pay rent once the COVID-19 emergency ceases. 
  3. Temporarily defer rent payments and make up missed payments over a period of time. The deferral could be for the entire amount of the rent, or just a portion, and can be allocated in whatever manner the parties may agree is workable (i.e., for a period of several months after the COVID-19 emergency ceases). However, landlords may wish to take a “wait and see” approach and only agree to the deferral on a month-to-month basis.
  4. Defer rent payments and agree to extend the lease for the duration of the deferral. Generally, this approach is less beneficial for landlords than Option #3, but tenants who might be slow to recover after the emergency, or who were barely able to pay rent before the emergency, might only agree to an extension of the lease, rather than making increased payments once normal business operations resume.

Each tenant’s ability to pay rent will vary, and landlords with multiple tenants face a myriad of challenges as they attempt to develop solutions that maintain continuity of their own cashflow without alienating their best and most reliable tenants. At Williams Parker, our team of experienced business and real estate attorneys are uniquely equipped to provide landlords with the depth of counsel they need to respond to these quickly evolving challenges.

[1]Writs of possession are also required to take possession of property after a foreclosure.

[2]The Clerk’s position applies to both residential and commercial evictions. For recent developments surrounding a federal moratorium on certain residential evictions, see our article Mortgage Relief in the CARES Act.

Kyle D. Elliott
kelliott@willimasparker.com
(941) 329-6618

Real estate attorneys Thomas B. Luzier and Patrick W. Ryskamp contributed to this post. 

Governor Issues Florida Safer-at-Home Order

 

An update to this post was published April 6.

Yesterday afternoon, on April 1, 2020, to continue efforts to slow the spread of COVID-19 and to make people in Florida safer, Florida’s Governor issued a Safer-at-Home Order (Executive Order 20-91).

First, the Safer-at-Home Order mandates that senior citizens and individuals with a significant underlying medical condition (such as chronic lung disease, moderate-to-severe asthma, serious heart conditions, immunocompromised status, cancer, diabetes, severe obesity, renal failure and liver disease) stay at home and take all measures to limit the risk of exposure to COVID-19.

Next, the Safer-at-Home Order requires that all persons in Florida limit their movements and personal interactions outside of their home to only those necessary to obtain or provide essential services or conduct essential activities.

I. Essential Services

For purposes of the Order, “Essential Services” means:

  • those services listed in the U.S. Department of Homeland Security’s Guidance on the Essential Critical Infrastructure Workforce, v. 2 (March 28, 2020) (“DHS Guidance”) and any subsequent lists published; and
  • those businesses and activities designated by the Governor’s earlier Executive Order 20-89 and its attachment which consists of a list propounded by Miami-Dade County in multiple orders (“Miami-Dade Orders”).

The “Essential Services” definition may be amended to add other services and will be maintained online at the Division of Emergency Management and the Florida Department of Health.

Note that the Safer-at-Home Order also specifically encourages individuals to work from home and for all businesses or organizations to provide delivery, carry-out, or curbside service outside of the business or organization, of orders placed online or via telephone, to the greatest extent practicable.

DHS Guidance

The DHS Guidance breaks down essential workers into the following industries:

  • Healthcare/Public Health
  • Law Enforcement, Public Safety, and other First Responders
  • Food and Agriculture
  • Energy
  • Water and Wastewater
  • Transportation and Logistics
  • Public Works and Infrastructure Support Services
  • Communications and Information Technology
  • Other Community- or Government-Based Operations and Essential Functions
  • Critical Manufacturing
  • Hazardous Materials
  • Financial Services
  • Chemical
  • Defense Industrial Base
  • Commercial Facilities
  • Residential/Shelter Facilities and Services
  • Hygiene Products and Services

Included in the DHS Guidance’s extensive list of essential services are restaurant carry-out and quick serve food operations; residential and commercial real estate services, including settlement services; banks; assisted living facilities and nursing homes; property management; certain contractors and builders, those responsible for the leasing of residential properties; staff at government offices who perform title search, notary, and recording services in support of mortgage and real estate services and transactions; educators supporting public and private K-12 schools, colleges, and universities for purposes of facilitating distance learning or performing other essential functions; and many others.

Miami-Dade County Orders

The Governor’s Executive Order 20-89, issued on March 30, 2020, designated essential services pursuant to the guidelines established by several Miami-Dade County Emergency Orders.

Such list of essential services includes, but is not limited to, grocery and pet supply stores; car dealerships and auto-repair; businesses supplying office products needed for people to work from home; taxis and other private transportation providers; child care; home based care; senior living facilities; open construction sites (irrespective of the type of building); and hotels, motels, and other commercial lodging establishments; factories and manufacturing facilities; office space and administrative support necessary to perform listed essential services; and any business that is interacting with customers solely through electronic or telephonic means and delivering products via mailing, shipping, or delivery services.

We encourage you to review the complete list of essential services identified in the DHS Guidance and Miami-Dade County Orders as they are exhaustive and cumulative.

II. Essential Activities

Essential Activities” are currently defined as the following, although this list may be amended:

  • Attending religious services conducted in churches, synagogues and houses of worship.
  • Participating in recreational activities (consistent with social distancing guidelines) such as walking, biking, hiking, fishing, hunting, running, or swimming.
  • Taking care of pets.
  • Caring for or otherwise assisting a loved one or friend.

However, the Safer-at-Home Order clarified that a social gathering in a public space is not an essential activity, and that groups of people greater than ten are not permitted to congregate in any public space.

The Safer-at-Home Order will be effective from 12:01 am on April 3, 2020, through April 30, 2020, unless extended by subsequent order.

Not affected by the Safer-at-Home Order, Williams Parker remains dedicated to serving its clients and continues to advise and represent clients with respect to their legal matters. Our firm has launched a multidisciplinary task force of lawyers across the firm to advise on issues arising from COVID-19. This team is closely monitoring legal developments and guidance from federal, state, and local government and public health officials. For the latest updates, please visit our website.

Special thanks to attorney Nicole F. Christie for her assistance with this blog post.

Gail E. Farb
gfarb@williamsparker.com
(941) 552-2557

IRS Extends Postponement of Deadline for Gift and Generation-Skipping Transfer Tax Filing and Payment, But Maintains Estate Tax Deadlines

On March 13, 2020, the President issued an emergency declaration instructing the Secretary of Treasury to provide relief from tax deadlines to Americans who have been adversely affected by the COVID-19 emergency (defined as “Affected Taxpayers”).

On March 27, 2020, the IRS issued an advanced notice of Notice 2020-20 which provides additional relief from Notice 2020-18 to taxpayers who have United States Gift and Generation-Skipping Transfer Tax Returns (Form 709) and payments due on April 15, 2020 by including such taxpayers in the definition of Affected Taxpayer. The April 15, 2020 deadline is postponed to July 15, 2020. The three-month relief provided under Notice 2020-20 to an Affected Taxpayer is automatic, and therefore, there is no requirement to file an Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift Generation-Skipping Transfer Tax (Form 8892) to obtain the benefit of the filing and payment postponement deadline of July 15, 2020. However, the Affected Taxpayer must file a Form 8892 by July 15, 2020 to obtain an extension to file Form 709 until October 15, 2020. Nevertheless, any Federal gift and generation-skipping transfer tax payments will still be due on July 15, 2020.

Accordingly, the period beginning on April 15, 2020 and ending on July 15, 2020 will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file a Form 709 or to pay Federal gift and generation-skipping transfer taxes shown on the respective Form 709. Interest, penalties, and additions to tax with respect to such postponed Form 709 and payments will begin to accrue on July 16, 2020.

Please note that neither Notice 2020-18 nor Notice 2020-20 postponed the due date for filing United States Estate (and Generation-Skipping Transfer) Tax Returns (Form 706).

Alyssa L. Shook
ashook@williamsparker.com
(941) 536-2029

For additional updates related to COVID-19, please visit our resources page

Business Tax Relief in the CARES Act

This post was updated April 6. 

On March 27, 2020, President Trump signed into law the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (H.R. 748). The CARES Act is the third stimulus package enacted amid the COVID-19 public health emergency, and while not the Act’s primary focus, it contains significant business tax relief. In a previous post, we provided an overview of the entire Act. This post covers the business tax changes and additions.

The key business tax provisions include:

  • The creation of an employee retention credit of up to 50% of the first $10,000 paid to each employee;
  • For taxable years 2018, 2019, and 2020, net operating loss carryovers (“NOLs”) are no longer subject to an 80% cap based on taxable income, and NOLS from 2018, 2019, and 2020 can be carried back five years;
  • For taxable years prior to January 1, 2021, the excess business loss limitation that applies to noncorporate taxpayers is repealed;
  • For taxable years beginning in 2019 or 2020, the interest expense limitation is increased to 50%, and taxpayers can use their 2019 adjusted taxable income for purposes of the 2020 calculation;
  • A technical correction to the depreciation treatment of qualified improvement property;
  • Unused corporate AMT credits through 2021 are accelerated for current full use and refundable for tax years 2018 and 2019;
  • Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with the first half due December 31, 2021 and the remainder due December 31, 2022;
  • An exclusion from income for certain loan forgiveness on loans taken out pursuant to other provisions of the CARES Act.

Employee Retention Credit

Effective for wages paid between March 13, 2020, and before January 1, 2021, the CARES Act allows for a refundable credit against Social Security taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. Employers may only take up to $10,000 of qualified wages into account for each employee for all calendar quarters, and the credit may be applied to the first $10,000 of compensation (including health benefits) paid to an eligible employee. This means that an eligible employer may receive a credit of up to $5,000 per employee, and there is no cap on the number of employees an employer may include in calculating the amount of the total aggregated credit. If the amount of an employer’s combined employee credits exceeds its quarterly employment taxes (as reduced by other credits), the excess will be treated as a refundable overpayment.

An “eligible employer” with respect to a calendar quarter, is an employer that had been carrying on a trade or business during the 2020 calendar year and (i) has operations that were fully or partially suspended during such calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19, or (ii) has a significant decline in gross receipts for such calendar quarter. A significant decline begins with the quarter in which the gross receipts for the quarter were less than 50% of those in the same quarter in the prior calendar year. The decline ends with the quarter in which gross receipts are greater than 80% of the gross receipts for the same quarter in the prior calendar year.

For employers with more than 100 full-time employees, qualified wages are wages paid to employees currently retained even though not providing services for such employers due to either of the COVID-19-related reasons listed above. For employers with less than 100 employees, all wages paid to their retained employees are qualified wages even if the employees are currently still providing services for such employers. Qualified wages may not exceed the amount an employee would have received for working an equivalent amount of time during the 30 days prior a specified period affected by COV1D-19.

The credit is reduced by any credits taken by employers for qualified veterans and research expenditures for small businesses. Additionally, the amount of qualified wages for which an eligible employer may claim the Employee Retention Credit does not include the amount of qualified sick and family leave wages for which the employer received tax credits under the Families First Coronavirus Response Act (FFCRA).

There are other limitations that apply to certain employers. Specifically, any eligible employers that receive a covered loan under the Paycheck Protection Program of the CARES Act are not eligible for this credit. Further, if an employer is allowed a Work Opportunity Tax Credit with respect to an employee, then that employee is not included for purposes of this credit for any period with respect to the employer. Keeping in mind that the Paycheck Protection Program is only available for business with fewer than 500 employees, the Employee Retention Credit is therefore available to larger employers who meet the distressed business criteria listed above. Employers qualifying for both the Paycheck Protection Program and the Employee Retention Credit will have to determine which of the two is more advantageous for its particular business. Eligible employers may elect out of the credit for any calendar quarter.

Further, just as with the credits for paid family and sick leave under the FFCRA, these credits do not apply to certain United States government or State government employers. The credit does, however, apply to tax-exempt organizations described under section 501(c) of the Code, which covers everything from charities to business leagues to social clubs to credit unions, etc. Any of these tax-exempt employers is deemed to be an eligible employer with respect to all of its operations (notwithstanding that such operations may not be a trade or business), and the same exclusion for participation in the Paycheck Protection Program applies.

Relaxation of Net Operating Loss Rules

The Tax Cuts and Jobs Act (“TJCA”) only just recently changed the net operating loss (“NOL”) rules. For taxable years ending after December 31, 2017, NOLs were allowed to be carried forward indefinitely but could offset only 80% of a taxpayer’s taxable income (a change from 100%) and could no longer be carried back to prior years (previously a two-year carryback was allowed).

The CARES Act now provides that, for tax years beginning before January 1, 2021, the 80% taxable income limit does not apply, which means corporate and noncorporate taxpayers are allowed to use NOLs to fully offset taxable income. It also clarifies how the 80% limitation is to be applied when it goes back into effect for any taxable year beginning after December 31, 2020.

The CARES Act also provides that NOLs arising in a taxable year beginning after December 31, 2017 and before January 1, 2021 are to be treated automatically as a carryback to each of the five preceding taxable years, unless the taxpayer elects out of the carryback. The carryback therefore operates on an all-or-nothing basis, meaning taxpayers may not choose to carry NOLs back to one particular year within the five-year carryback period. An NOL arising in a tax year beginning in 2018, 2019, or 2020 must be carried back to the earliest year within the five-year carryback period in which there is taxable income, as early as 2013, 2014, and 2015, respectively. Considering the pre-2018 corporate tax rate was 35% (versus 21% now) and the top individual rate was 39.6% (versus 37% now), this carryback could be extremely valuable to certain taxpayers.

A taxpayer must make the election to forgo these NOL carrybacks for 2018, 2019, and 2020 at least by the filing deadline for one’s 2020 income tax return (including extensions). The decision to elect out is, however, allowed to be made for each year. This means that a taxpayer may opt out of the 2018 carryback without limiting its decision for 2019 and 2020. The IRS will likely release guidance advising taxpayers how to request refunds for NOL carrybacks or elect out of the automatic carryback. No refund can be claimed until the return for the tax year in which the NOL arises has been filed. For most taxpayers, the 2018 income tax return has been filed, meaning they may request a refund for a year to which a 2018 NOL is carried (the earliest of five prior years with taxable income). This can be done by filing an amended return or by filing a request for tentative refund. Taxpayers who have already filed for 2019 may do the same to make use of any NOLs for that year. No NOL may be carried back from 2020 until the tax year closes.

Remembering that you cannot pick and choose the year(s) to which an NOL is carried back, taxpayers should consider the opportunity to use an NOL to reduce or clear an underpayment of tax for a year within the five-year carryback range.

Special rules apply to real estate investment trusts (REITS) and life insurance companies. A REIT is not allowed to carry back any NOL, nor may an NOL be carried back to any year in which a taxpayer was formerly a REIT.

Suspended Excess Business Loss Rules

For years before January 1, 2021, the CARES Act repeals the excess business loss limitation that applies to noncorporate taxpayers (individual’s, partnerships, or S corporations) after the passive loss rules, and which disallows the use of a business loss in excess of $250,000, or $500,000 for joint filers against nonbusiness income, and treats such loss as an NOL carryover to the next tax year. This means noncorporate taxpayers with business losses arising in 2018, 2019, and 2020 can enjoy the five-year carryback without regard to the excess business loss rules. If you had a business loss that was limited in 2018 or 2019 under the excess business loss rules, then you may be able to obtain a refund by filing an amended tax return.         

Increased Business Interest Expense Limitation

Current law generally limits taxpayers’ deduction for a business interest expense to the sum of business interest income and 30% of adjusted taxable income. For most taxpayers, the CARES Act increases this 30% limit up to 50% of a taxpayer’s adjusted taxable income for tax years 2019 and 2020. A taxpayer may elect to not apply this increased limitation, but once the election is made, it can only be revoked by the Secretary of the Department of Treasury.

Special rules apply for partnerships. For partners in a partnership, the increase to 50% applies only to taxable years beginning in 2020 (therefore, excluding 2019), but a partner can carry over to 2020 any business interest that was disallowed in 2019 and deduct 50% of that amount, with the remaining 50% subject to the otherwise applicable rules. The CARES Act also allows any taxpayer to elect to use its 2019 adjusted taxable income instead of its 2020 adjusted taxable income when computing the business interest limitation for 2020. This will increase the amount of business interest expense most taxpayers are able to deduct, assuming their income was higher in 2019.

Technical Correction for Qualified Improvement Property

The TCJA mistakenly defined the term “qualified improvement property” in a way that prevented such property from being eligible for the intended 100% bonus depreciation. Qualified improvement property is generally defined as any improvement to an interior of a nonresidential building that is placed in service post-improvement, following the original date on which the building was placed in service. The CARES Act makes a technical amendment to Code section 168(e)(3)(E) correcting a drafting error by including qualified improvement property as “15-year property” instead of the mistaken recovery period of 39 years. This amendment applies retroactively to property placed in service after December 31, 2017. This provision is meant to not only increase a business’s cash flow by allowing them to amend a prior year’s return, but it is also meant to incentivize them to continue to invest in improvements during this public health emergency.

The IRS is expected to release guidance as to how taxpayers may claim the greater depreciation deduction through automatic accounting method change procedures. In the meantime, taxpayers may have the option of amending previously filed returns to retroactively claim any missed deductions.

Credit for Corporate Alternative Minimum Tax

Prior to the TCJA, the amount of alternative minimum tax (“AMT”) paid by a corporation was allowed as a credit in a subsequent taxable year. The TCJA repealed the AMT for corporations for taxable years beginning after December 31, 2017, but allowed corporations to treat 50% of any unused AMT credit as refundable in 2018, 2019, 2020, and 100% as refundable in 2021. The CARES Act accelerates this timeline, making the AMT credit 100% refundable for taxable years beginning in 2018 and 2019. Accordingly, the new law provides relief to corporate taxpayers with non-refunded AMT credits in 2018, who should be able to amend their 2018 returns (assuming they have been previously filed) and be refunded for those amounts.

Delay of Employer-Side Social Security Payroll Tax Payments

The employer’s portion of Social Security taxes for the period from enactment (March 27, 2020) up to January 1, 2021 will not be due until December 31, 2021, when half of the deferred amount is due, and December 31, 2022, when the other half is due. Similar rules allow deferral of 50% of the corresponding Federal self-employment taxes.

Federal withholding taxes, Medicare taxes and withholding, and employee social security withholding are not eligible for the deferral.

All employers are eligible for the deferral other than those who have loans forgiven under the CARES Act’s Paycheck Protection Program. However, there is some tension in the timing of potential loan forgiveness and at least the first payroll tax payment deadline. This means an employer could apply for a loan under the Paycheck Protection Program and not receive a loan until after the first payroll tax payment is due. In this situation, an employer is allowed to defer payroll tax payments until the employer subsequently receives loan forgiveness, because deferral is not disallowed until an employer has actually had loan amounts forgiven. We expect the IRS to release guidance as to how it plans to handle this situation. It may be that the IRS will not expect payment of any payroll taxes deferred prior to loan forgiveness until the first due date (December 31, 2021), or it may provide for a sooner claw back of any deferred payments.

Payroll tax deferral can be used in conjunction with the Employee Retention Credit, so long as the credit does not result in a refund to the employer.

Certain Loan Forgiveness Excluded from Income

The CARES Act allows certain small business loan forgiveness necessary to maintain payroll or pay mortgages, rent, or utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date. If a business applied for and received a $10,000 advance under the Economic Injury Disaster Loan provisions before transferring into the Paycheck Protection Program, such advance will be deducted from the total loan forgiveness amount. Any portion of the loan that is forgiven pursuant to the Act is excluded from taxable income.

There are numerous tax provisions in the CARES Act that could be beneficial to a business, including multiple opportunities to amend a prior year’s return to increase liquidity. Please do not hesitate to call us if we can assist you in taking advantage of any part of this legislation.

Christina J. Strasser
(941) 536-2048
cstrasser@williamsparker.com

Why Individuals Should Care About the CARES Act: Retirement Plans and Charitable Contributions

An update to this post was published May 11, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides various relief provisions for individuals, including provisions that benefit individuals in relation to their retirement plans and that provide an increase in allowable charitable deductions.

Income Taxation of Retirement Plans

10 Percent Additional Tax Waived for Coronavirus-Related Distributions
Generally, the IRS imposes ordinary income tax on retirement plan distributions. The IRS also imposes a 10 percent additional tax on retirement plan distributions that are included in the distributee’s gross income unless the distributee is over the age of 59½ or another exception is met.

The CARES Act waives this 10 percent additional tax for any “coronavirus-related distribution” up to $100,000. It is not necessary that the relevant plan allowed hardship distributions prior to the CARES Act. A coronavirus-related distribution is defined as any distribution from an eligible retirement plan, which includes IRAs, IRA annuities, qualified trusts, certain other retirement annuities, and specific deferred compensation plans, made during 2020 to an individual that meets one of the following criteria (“Qualified Individual”):

  • He or she is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC;
  • His or her spouse or dependent is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC; or
  • He or she experiences adverse financial consequences as a result of being quarantined, being furloughed, laid off, or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
    The administrator of the retirement plan may rely on the employee’s certification that the employee meets one of the above conditions to determine whether the distribution qualifies as a coronavirus-related distribution.

Three-Year Rules Related to the Income Taxation of Coronavirus-Related Distributions
Although the 10 percent additional tax is waived when the foregoing requirements are met, the IRS will generally still impose income tax on distributions from an eligible retirement plan.
To provide further relief, unless the Qualified Individual elects out of this treatment, the amount of the coronavirus-related distribution required to be included in gross income will be includable ratably over a three-year period beginning with the year of the distribution. In other words, the tax liability payments may be spread out over this three-year time period.

Further, a Qualified Individual may repay an amount up to the amount of the coronavirus-related distribution to the eligible retirement plan within the three-year period beginning with day after the date of the distribution. If the Qualified Individual repays the corona-related distribution, then the Qualified Individual will be treated as transferring the repayment tax-free to the eligible retirement plan and the repayment will not affect the cap on retirement account contributions.

Loans from Qualified Employer Plans for Coronavirus-Related Relief
The CARES Act provides more flexibility for Qualified Individuals to take out loans from qualified employer plans, which includes a 401(a) plan, certain annuity plans, and certain 403(b) plans. Prior to the CARES Act, an individual could take out a loan without it being treated as a distribution from a qualified employer plan in the amount that was the lesser of $50,000 or one-half of the value of the account balance. For the 180-day period beginning on March 27, 2020, a Qualified Individual may now take out a loan up to the lesser of $100,000 or the full value of the account balance.

Additionally, if a Qualified Individual has an outstanding loan from a qualified employer plan that is due between March 27, 2020 and December 31, 2020, the due date will be delayed for one year; however, interest will accrue during such delay. The one-year delay will not count toward the five-year requirement that a loan from a qualified employer plan be repayable within five years.

Required Minimum Distribution Rules for Retirement Plans

Temporary Waiver of Required Minimum Distribution Rules
For 2020, the required minimum distribution (“RMD”) requirements for certain defined contribution plans and individual retirement plans do not apply. This includes any RMD, including RMDs from 2019, that are required to be made in 2020 as long as it was not made before 2020. This includes RMDs that were required to begin in 2020 due to an owner turning 70½ in 2019.

Similar to the relief provided in 2009 as a result of the economic recession, amounts distributed in 2020 that would otherwise have been an RMD are eligible for rollover, subject to limitations.
There are also various provisions related to plan amendments.

Charitable Deductions
For individuals who do not itemize deductions, the CARES Act provides a new above-the-line deduction for qualified charitable contributions up to $300 annually. To qualify, the contribution must be made in cash to a 170(b)(1)(A) organization, which does not include a 509(a)(3) supporting organization or a donor advised fund.

The CARES Act also provides benefits for individuals and corporations who itemize deductions when such taxpayers contribute cash to a 170(b)(1)(A) charitable organization (not including a 509(a)(3) supporting organization or a donor advised fund) and elect for such benefits to apply (“Qualified Contribution”). In the case of a partnership or S-corporation, the election for such benefits to apply must be made separately by each partner or shareholder.

For individuals who itemize deductions, the CARES Act removes the cap (which was 60 percent of adjusted gross income) for 2020 on the deduction for a Qualified Contribution. Thus, an individual who itemizes deductions may deduct a Qualified Contribution to the extent such contribution does not exceed the individual’s adjusted gross income. An individual may carry over and deduct the excess Qualified Contribution over the following five-year period.
For corporations, the CARES Act changes the limitation from 10 percent to 25 percent of the corporation’s taxable income on the deduction for a Qualified Contribution for 2020. The corporation will also be able to carry over and deduct the excess Qualified Contribution in the following five years, subject to limitations.

Finally, the CARES Act changes the limitation from 15 percent to 25 percent of net income on the deduction for a charitable contribution of food inventory from a trade or business during 2020.

Diana L. Berlin
dberlin@williamsparker.com
(941) 329-6616

For additional updates related to COVID-19, please visit our resources page

The Expansion in Telehealth through the CARES Act

The recently enacted Coronavirus Aid, Relief, and Economic Security (“CARES”) Act strongly supports the use of telehealth, removes barriers to its use, and undeniably acknowledges that access to telehealth is fundamental in defeating the COVID-19 pandemic. Telehealth is a powerful technology that enables patients geographically separated from healthcare providers to more easily access health care and speed up diagnosis and treatment. Telehealth is especially valuable in light of the highly contagious nature of COVID-19 because telehealth limits the risk of person-to-person exposure, thus thwarting the spread of the viral disease. The CARES Act will help America’s healthcare providers to migrate their patients to virtual care platforms which reduce exposure to COVID-19. The Act contains provisions which will expand the use of telehealth services both during the current COVID-19 pandemic (“emergency period”) and beyond with respect to Medicare beneficiaries, veterans, rural care, hospice care and home health services, and individuals with Health Savings Accounts (“HSA”).

CARES Act telehealth provisions build on the initial Medicare Telehealth Waiver authorized by Congress earlier in March 2020 by removing the requirement that a provider must have seen the patient within the last three years. This allows Medicare beneficiaries to more easily access care when and where they need it during the COVID-19 pandemic. This will enable beneficiaries to access telehealth, including in their home, from a broader range of providers, and will thereby reduce potential exposure to and spread of COVID-19. The CARES Act requires the U.S. Department of Health & Human Services to issue clarifying guidance encouraging the use of telecommunications systems, including remote patient monitoring, to furnish home health services consistent with the beneficiary care plan during the emergency period. During the emergency period, qualified hospice providers can use telehealth technologies to fulfill Medicare’s face-to-face recertification requirement.

Veterans Administration (“VA”) facilities will receive $14.4 billion in funding for the provision of healthcare services through telehealth as well as for the purchase of medical equipment and supplies, testing kits, and personal protective equipment. Included in that funding is $2.15 billion, which is dedicated to the VA’s information technology to support increased telework, telehealth, and call center capabilities to deliver healthcare services directly related to coronavirus and mitigate the risk of virus transmission including the purchasing of devices, as well as enhanced system bandwidth and support. Also authorized under the CARES Act is the VA’s expansion of mental health services delivered via telehealth and authorization for VA to enter into short-term agreements with telecommunication companies to provide veterans with temporary broadband services.

The CARES Act permits individuals with HSAs that are insured through high-deductible health plans to use telehealth services without the need to first reach a deductible. This provision should allow patients who may have the COVID-19 virus to obtain medical consultation from home and thus protect other patients and caregivers from potential exposure. However, this is a temporary provision that will expire on December 21, 2021.

The Health Resources and Services Administration will receive $180 million to assist Federally Qualified Health Centers (“FQHC”) and Rural Health Clinics (“RHC”) in providing telehealth services. During the emergency period, FQHCs and RHCs may serve as “distant sites” (i.e., the location of the healthcare provider) for telehealth consultations. Thus, FQHCs and RHCs can furnish telehealth services to Medicare beneficiaries in their home, and Medicare will provide reimbursement for these such services.

Steven D. Brownlee
sbrownlee@williamsparker.com
(941) 552-2567

For additional updates related to COVID-19, please visit our resources page

Unemployment Provisions in the Coronavirus Aid, Relief, and Economic Security Act

As businesses in Florida make decisions on how to move forward during the COVID-19 public health emergency, many businesses are weighing the effects of a layoff or furlough on their employees’ ability to secure unemployment benefits. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act—which was signed into law the afternoon of March 27, 2020—includes provisions that address these issues. These provisions are referred to as the Relief for Workers Affected by Coronavirus Act.

Before addressing how the CARES Act may temporarily affect unemployment, it is important to understand what steps the State of Florida has already taken. At this stage, Florida has temporary made individuals who have a COVID-19-related unemployment situation eligible for reemployment assistance (the name Florida gives to unemployment benefits). Specifically, under current Florida guidance, the following persons are currently eligible for COVID-19 unemployment benefits:

  • People ordered to quarantine by a medical professional
  • Those laid off or sent home without pay for an extended period by their employer due to COVID-19
  • Those caring for an immediate family member with the virus.

The CARES Act will expand these benefits—presuming, of course, that Florida enters into an agreement with the federal government. Such an agreement is required for each provision in the CARES Act related to unemployment.

If Florida agrees and participates in the expended benefits, below is general summary of what will be available to those whose work has been negatively impacted by the coronavirus:

Federal Pandemic Unemployment Compensation: provides an additional $600 per week in unemployment benefits on top of the maximum benefits an individual may receive (state provided benefits + Pandemic Unemployment Compensation = Total Benefits). These benefits are available to those whose lack of work is tied to COVID-19 up through July 31, 2020.

Pandemic Unemployment Assistance: provides for financial assistance for gig workers, the self employed and contract workers typically not eligible for benefits.

  • Applies to those not eligible for regular benefits, including those that have already exhausted rights to regular or extended benefits, provided that they meet certain criteria – i.e. a need related to COVID-19.
  • It appears that furloughed workers will be eligible for benefits, even while staying on company benefit plans.
  • Does not include those that have the ability to telework with pay or are receiving paid leave benefits.
    • Available for loss of pay/income between January 27, 2020 and December 31, 2020.
    • No “waiting period” for benefits.
    • Benefits shall not exceed 39 weeks total benefits under this or any other unemployment provision, unless extended benefits are provided.

Pandemic Emergency Unemployment Compensation: provides an additional 13 weeks on top of states’ standard limits for employees meeting specific criteria (lack of work due to COVID-19).

  • Florida’s current standard limit for benefits is 12 weeks.
  • Thus, it appears that a total of 25 weeks of eligibility—unless extended benefits apply in which case this benefit should be used before the extended benefit.

Temporary Funding of State One Week Waiting Period: provides that if States waive the requirement of a one week waiting period for benefits, the States will be reimbursement for unemployment compensation payments made for that week.

Temporary Financing of Short-Term Compensation (“STC”) Payments: provides that from the date of enactment until December 21, 2020, States such as Florida will be reimbursed for payments made pursuant to an STC program, if the need for such payments arises from a reduction in hours due to COVID-19 and the works is not employed on a seasonal, temporary, or intermittent basis.

  • STC allows employers to reduce hours of work for employees rather than laying-off some employees while others continue to work full time.
  • Those employees experiencing a reduction in hours are allowed to collect a percentage of their unemployment compensation benefits to replace a portion of their lost wages.
  • Additional information can be found at this website the State of Florida has established:

Williams Parker has launched a multidisciplinary task force of lawyers across the firm to advise on issues arising from COVID-19 and to provide guidance for affected clients. This team is closely monitoring legal developments and guidance from federal, state, and local government and public health officials. For the latest updates, please visit our website.

Jennifer Fowler-Hermes
jfowler-hermes@williamsparker.com
(941) 552-2558

This post was originally published on Williams Parker’s Labor & Employment Blog.

Liquidity for Businesses: Government Resources to Infuse Money into Small Business Affected by the Coronavirus

Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748) is designed to get much-needed liquidity to business by, among other means:

  • Origination of new Small Business Administration (SBA) loans through the “Paycheck Protection Act”;
  • Economic Injury Disaster Loans and Emergency Grants; and
  • Loan Payment Subsidies for Existing SBA Loans.

The SBA must provide additional guidance and regulations with 15 days of the execution of the CARES Act, but below is a broad outline of some of the resources designed to infuse liquidity into small business in the coming weeks.

The Paycheck Protection Act

Building on the existing platform of the SBA’s 7(a) loans available to small business from banks and other lending institutions, the Paycheck Protection Program (PPP) in the CARES Act allocates $349 billon to guarantee nonrecourse loans to “small business” and certain non-profits that have been economically affected by Coronavirus. Broadly speaking, the goal of the PPP is to get funds quickly into the economy that can be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments. To expedite getting PPP loans to small business, the PPP (i) expands the scope of what businesses qualify for an SBA loan; (ii) eliminates the typical requirements needed to obtain a SBA loan; and (iii) provides a loan forgiveness provision tied to certain expenses incurred and paid by a borrower.

Here is a breakdown of the relevant terms of the PPP:

Eligible Borrowers
  • Businesses and Nonprofits with up to 500 employees or which otherwise meet specific SBA classification codes
  • Individuals operating as a sole proprietors or as independent contractors
  • Eligible self-employed individuals
  • Businesses with more than 500 employees that maintain multiple physical locations (e.g., restaurants and hotels)
Borrower Requirements
  • Borrowers must have been in business as of February 15, 2020 and have had employees or independent contractors to which they were making payments
  • No collateral or personal guarantees required
  • Borrowers must execute a good faith certification that they will use the funds to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments
  • PPP suspends many typical requirements of an SBA loan, including the requirement that borrowers show they are unable to get credit elsewhere
Loan Duration & Interest Rate
  • Duration of up to 10 years
  • Maximum interest rate of 4%
Loan Amount
  • Maximum of the lesser of: (a) $10,000,000 and (b) 2.5 times the borrowers’ average payroll costs over the twelve months preceding the origination of the loan (Note: there is a modified calculation for seasonal businesses or businesses that were not in business between February 15, 2019 and June 30, 2019)
Allowable Uses of Loan
  • With some exceptions, loan proceeds are available for (i) payroll costs; (ii) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums; (iii) employee salaries, commissions, or similar compensations; (iv) payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation); (v) rent (including rent under a lease agreement); (vi) utilities; and (vii) interest on any other debt obligations that were incurred before the covered period
Repayment Obligations
  • Allows for borrowers to defer loan payments of principal, interest, and fees for between six and twelve months
  • Waives prepayment penalties on loan
Loan Forgiveness
  • Borrowers are eligible for loan forgiveness in an amount equal to expenses incurred and paid by borrower during the eight weeks following the origination of the loan (the “Covered Period”) on (i) payroll costs; (ii) any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation); (iii) any payment on any covered rent obligation; and (iv) any covered utility payment
  • Amount of loan forgiveness will be reduced based on a reduction of the number employees employed by borrower during the Covered Period compared to prior periods (though borrowers that rehire previously laid-off employees will not be penalized for a reduced payroll at the start of the Covered Period)
  • Amount of loan forgiveness will be reduced based on certain reductions relating to salary and wages paid by borrower during the Covered Period compared to prior periods
  • To establish amount of the loan forgiveness, the borrower will need to submit detailed records to the lender servicing the borrower’s loan
  • Cancellation of indebtedness resulting from any loan forgiveness will not be included in a borrower’s taxable income
Other Notable Provisions
  • Retroactive to February 15, 2020, so that 7(a) SBA loans originated from February 15, 2020 on are subject to the PPP
  • Waives borrower and lender fees related to loan

Economic Injury Disaster Loans and Emergency Grants

In addition to providing liquidity to borrowers through the PPP, the CARES Act expands the scope and availability of Economic Injury Disaster Loans (EIDL) to extend not only to small business concerns, private nonprofit organizations, and small agricultural cooperatives, but also to small business with not more than 500 employees, individuals operating as sole proprietorships, cooperatives with not more than 500 employees, ESOPs with not more than 500 employees, and tribal small business concerns. In broadening the availability of EIDLs to borrowers, the CARES Act also waives typical EIDL requirements that (i) borrowers provide personal guarantees; (ii) borrowers must have been in business for one year before the disaster; and (iii) borrowers show that they are unable to get credit elsewhere. In administering EIDLs, the SBA may approve a borrower solely based on the borrower’s credit score or use “alternative appropriate methods to determine an applicant’s ability to repay” an EIDL.

The CARES Act provides for an advance on an EIDL in the form of an emergency grant of up to $10,000.  If an eligible borrower requests the advance, the SBA is required to distribute the emergency grant within 3 days of the request. Uses for the advance must relate to the economic effects caused by COVID-19 and include, (i) providing paid sick leave to employees; (ii) maintaining payroll to retain employees; (iii) meeting increased costs to obtain materials; (iv) making rent or mortgage payments; and (v) repaying obligations that cannot be met due to revenue loses. Eligible borrowers who receive an emergency grant but are later denied an EIDL are not required to repay the advance.  In the event that a borrower transfers into a Paycheck Protection Program loan, any advance received by the borrower shall reduce the amount of any loan forgiveness under the Paycheck Protection Program.

Loan Payment Subsidies for Existing SBA Loans

As part of the CARES Act, Congress provides assistance to existing SBA loans and related loans by allocating $100 billion to the SBA to pay principal, interest, and any associated fees owed on preexisting covered loans.  Unless the loan is already being deferred, payments on the covered loan will begin following the next payment due.  For covered loans that are currently in deferral, the six-month period shall begin following the existing deferment period.  The subsidies and payments under this portion of the CARES Act apply to existing SBA loans only and not SBA loans made under the Paycheck Protection Program.

SBA Guidance and Loan Resources

While we wait for the SBA to establish regulations implementing the provisions of the CARES Act over the coming days, it is worth noting that the SBA has already established a “Coronavirus (COVID-19): Small Business Guidance & Loan Resources” page on its website that addresses:

  • Economic Injury Disaster Loans and Loan Advances;
  • SBA Debt Relief;
  • SBA Express Bridge Loans;
  • Guidance for Businesses and Employers;
  • SBA Products and Resources;
  • Government Contracting, and
  • Local Assistance.

Though many of these topics and the SBA’s current guidance will need to be updated to address the various aspect of the CARES Act—including, the Paycheck Protection Program, Economic Injury Disaster Loans and Emergency Grants, and Loan Payment Subsidies for Existing SBA Loans—since those provisions of the CARES Act are designed to overlay on the existing structure of SBA Loans, if you don’t already have experience working with the SBA or obtaining an SBA Loan, I recommend you take a look at the SBA’s current guidance.

Florida Small Business Emergency Bridge Loan Program

Eligible Florida small businesses may apply to the Florida Small Business Emergency Bridge Loan Program to bridge liquidity gaps while waiting for sufficient profits from a revived business, receipt of payments on insurance claims, or until federal disaster relief becomes available. Eligibility is linked to the availability of other financial resources. Any amounts distributed under the loan program are short-term, interest-free loans that must be repaid within one year.

Eligible businesses must have between 2 and 100 employees, be privately owned and operating in the state of Florida, and have been in existence prior to the date of the declared disaster (March 9, 2020).  If a business is able to demonstrate that it has suffered significant economic injury due to the declared disaster, a loan of $50,000 may be made available.  Loans of up to $100,000 may be made available in special cases should a business demonstrate exceptional need.

Eligible businesses have until May 8, 2020, to apply.  The application can be found online at the Florida Department of Economic Opportunity website.

James-Allen McPheeters
jamcpheeters@williamsparker.com
941-329-6623

For additional updates related to COVID-19, please visit our resources page

Update: CARES Act Grants Authority for Adjustment of IP Deadlines

An update to this post was published April 7. 

The newly-passed CARES Act now authorizes the Director of the United States Patent and Trademark Office (“USPTO”) and the Register of Copyrights to “toll, waive, adjust, or modify” certain timing deadlines and provisions under trademark, patent, and copyright law in response to the Coronavirus outbreak. This addresses the issue previously raised by the USPTO, discussed in our original post below, that it was unable to grant waivers or extensions of certain trademark deadlines and fees because they are set by statute rather than regulation.

The USPTO Director and the Register of Copyrights may exercise the powers granted under the CARES Act by publicly publishing a notice to that effect. We will continue to monitor the situation and update this Blog with the latest news.

This post is an update to a previous post

Elizabeth M. Stamoulis
estamoulis@williamsparker.com
(941) 552-5546

 

CARES ACT Becomes Law

A third stimulus package to combat the COVID-19 public health emergency, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R. 748), became law on Friday, March 27, 2020, with President Trump’s signature, just hours after it cleared the House. As discussed in detail in our previous post, the CARES Act builds tremendously on two previously enacted pieces of legislation and provides enhanced financial support for both individuals and businesses suffering from the continuing COVID-19 pandemic. Tax policy is front and center, with a focus on getting money directly into the hands of millions of individuals and providing liquidity for small businesses.