Tag Archives: small business

PPP Flexibility Act Expected to Be Signed into Law

On Wednesday, June 3, 2020, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was approved by the House late last week. President Trump is expected to sign the Act into law. As a part of the larger Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program (“PPP”) provides loans to small-to-mid-sized businesses suffering from the COVID-19 pandemic. As enacted, the PPP loans are to be forgivable when used for specific business and payroll expenses during a specified timeframe. Any forgiven loan amounts are excluded from businesses’ taxable income. However, due to insufficient funding and lengthier pandemic-related shutdowns, the PPP relief became inaccessible for many businesses.

The changes made to the PPP by the new legislation include:

  • Allowing businesses 24 weeks (or until December 31, 2020, if it comes first) post-loan origination to use loan money that will qualify for forgiveness. This applies to both new and existing loans.
  • Reducing the amount of loan money required to be spent on payroll expenses from 75 percent to 60 percent, allowing more funds to be spent on rent, utility payments, and mortgage interest.
  • Extending the time period for the rehiring exception to forgiveness reduction from June 30, 2020 to December 31, 2020 and adding new exceptions for employers who could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19-related operating restrictions.
  • Extending the loan terms from two to five years, unless otherwise modified by lenders and borrowers.
  • Permitting payroll tax deferment for businesses that receive PPP loans regardless of loan forgiveness. Under the CARES Act and subsequent interpretive guidance, payroll tax deferral could only be utilized up until a business received notification of loan forgiveness.
  • Replacing the six-month deferral of PPP payments due with deferral until the date on which the amount of loan forgiveness is provided to the lender.

The legislation does not clarify the parameters of the required PPP certification that “[c]urrent economic uncertainty makes [a] loan request necessary to support the ongoing operations of the Applicant.” It also does not address the deductibility of expenses paid for by PPP loan funds, as previously discussed in a prior post. Further PPP corrections and guidance are expected.

PPP Bonuses, Hazard Pay Count Towards Forgivable Payroll Costs, and Other New Guidance

On May 22, 2020, a week after issuing the application form for the CARES Act’s Paycheck Protection Program (“PPP”) loan forgiveness, the Small Business Administration (“SBA”) released the twenty-six-page interim final rules that provide formal guidance to accompany the application package.

Most of the interim final rules reiterate the substance of the PPP loan forgiveness application, but they also include new pieces of significant guidance such as the inclusion of employee bonuses and hazard pay as forgivable payroll costs when paid to employees earning less than $100,000 a year. Such payments are eligible for forgiveness because, as a supplement to salary or wages, they are considered compensation.

Some of the other significant new guidance includes:

  • a further cap on the forgivable payroll expenses of owner-employees, as not to be confused with self-employed individuals, in an amount that is the lesser of 8/52 of 2019 compensation or $15,385 per employee;
  • application of the above cap across all business, suggesting that someone with an ownership interest in multiple business will be subject to the overall limitation; and
  • safe harbors to protect borrowers from a reduction in full-time employees due to the employees’ actions.

Unsurprisingly, questions remain following the release of the rules, such as the definition of an “owner-employee.” No additional IRS frequently asked questions  have been released to supplement the interim final rules.

IRS Issues Expanded FAQ Guidance on Employee Retention Credit

The Internal Revenue Service (“IRS”) has expanded its FAQ guidance on the Employee Retention Credit (“ERC”), which has been discussed in greater detail in a prior post. Enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the ERC provides a refundable tax credit to eligible employers for certain employment taxes equal to 50 percent of up to $10,000 in qualified wages paid per employee, effective March 12, 2020 through December 31, 2020. However, employers that received loans under the Paycheck Protection Program (“PPP”) are not eligible for the ERC.

The ERC FAQ was originally posted in late March, and the IRS has since continued to update it. The FAQ now has nearly 100 questions posed and answered on major-issue areas such as:

A more recent update relates to the eligibility of an employer who repays its PPP loan in accordance with the Small Business Administration (“SBA”) requirement that a business recertify in good-faith that the PPP loan was “necessary to support ongoing business operations” (previously discussed here, here, and here). Released May 8, 2020, the IRS FAQ 79 states that an employer that applied for the PPP loan, received payment, and “repays the loan by May 14, 2020 . . . will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit.” Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer.

The original deadline for PPP loan repayment was May 7, 2020, but was extended to May 14, 2020 with FAQ 43 of the SBA’s PPP FAQs. The SBA then further extended the repayment deadline to Monday, May 18, 2020 in SBA FAQ 47, following its release of guidance which relieved borrowers with loans of less than $2 million from the “necessity” recertification. While the IRS ERC FAQ has not been updated to reflect the new May 18 deadline, we can only assume that those employers who do make repayment by this time would qualify for the ERC all the same. We note, however, that implicit in IRS FAQ 79 is that employers who do not voluntarily make timely repayment may not claim the ERC. In other words, any employer who is ultimately forced by the SBA to repay the loan would not be allowed to take the ERC.

While the PPP loan was at the top of most employers’ COVID-relief wish lists, and for obvious reasons, the ERC may be the next best option for those who erred on the side of repayment. We are happy to answer any questions employers that opted for repayment may have.

PPP Loans Less Than $2 Million Deemed Certified in Good Faith; Larger Loans Get Penalty Relief But Remain In Cloud of Repayment Uncertainty

On Wednesday, May 13, 2020, just a day before the deadline to recertify or repay Paycheck Protection Program (“PPP”) loans (previously discussed here), the Small Business Association (“SBA”) made good on its promise to provide further guidance as to what circumstances necessitate repayment with its release of FAQ 46. The new FAQ asks the following question:

“How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

The first part of the SBA’s answer reveals a safe harbor for borrowers of PPP loans with an original principal amount of less than $2 million. Borrowers who received loans below this threshold will be deemed to have certified in good faith that the loan was necessary, because they “are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” The SBA also admitted that it has bigger fish to fry, as removing these borrowers from the PPP loan pool will allow it to “conserve its finite audit resources and focus its reviews on larger loans.”

As for the $2 million-and-above borrowers, the FAQ goes on to say that they may still have an adequate basis for making the required good-faith certification depending on their circumstances. If, however, the SBA determines by its review that a borrower lacked an adequate basis for its PPP loan, the SBA will seek repayment of such loan and notify the lender that the borrower is ineligible for loan forgiveness. Further, the SBA will not take administrative enforcement action to collect repayment or make referrals to other agencies if the borrower voluntarily repays the loan after receiving notification from the SBA. The SBA did not offer a specific timeframe within which repayment would prevent administrative enforcement.

Borrowers who did receive loans of $2 million or more should consider setting aside enough funds to make a repayment should the SBA require it, though one wonders whether the SBA could use retention of such reserves as a basis to question the necessity—and hence the qualification—of the loan. That seems like an unfair catch-22, motivating “larger” small businesses to stop paying employees after the PPP measuring period ends. We hope the SBA will provide more clarification to help these businesses avoid that dilemma and to encourage businesses to continue deploying funds to keep their workforces in place after the PPP measurement period ends.

The SBA also released FAQ 47 later in the day on May 13, which automatically extends the repayment date to Monday, May 18, 2020. The stated reason for this extension is “to give borrowers an opportunity to review and consider FAQ 46.” The practical significance of FAQ 47 as it relates to the necessary-ness certification is unclear, given the penalty relief provided by FAQ 46.

PPP Repayment Deadline Extended But Confusion Remains

On May 5, 2020, the Small Business Administration (“SBA”) in consultation with the Department of Treasury (“Treasury”) announced in a new online FAQ that it is giving extra time for companies to repay loans they applied for and received in good faith under the initial guidance provided by the SBA to the Paycheck Protection Program (“PPP”). Originally set for May 7, 2020, the deadline to repay the loan without incurring penalties is now extended to May 14, 2020. The SBA also stated that it plans to issue “additional guidance on how it will review certification prior to May 14, 2020.” Continue reading

SBA Issues Potentially Overbroad Guidance Narrowing PPP Qualification Standards

Lawyers have a saying, “Bad Facts Make Bad Law.”  Recent Small Business Administration guidance regarding the Paycheck Protection Program proves it true in one more case.

Even as Congress moves to approve additional funds to the Paycheck Protection Program, the SBA issued a new FAQ in response to news stories about public companies receiving PPP money.  The FAQ states that “a public company with substantial market value and access to capital markets” may not receive PPP funding.  While understandable with respect to the companies in the headlines, it is concerning that the SBA could apply the guidance more broadly.  Doing so would cause more delays or denial in funding for smaller enterprises, and defeat Congress’ intent to support employee retention by private employers.

This is the new FAQ:

  1. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

We understand the political motivation behind the guidance.  We also believe applying a strict standard based on a company’s value or a company’s access to outside capital or “other sources of liquidity” is perverse.  Congress intended the PPP to motivate companies to retain employees.  Valuable companies with reserves and access to capital will still furlough or release employees, as demand for their services or products drops.  For even those companies, the PPP is therefore “necessary to support ongoing business operations,” because given the current economic landscape they would not deplete reserves or access other sources of liquidity to retain unprofitable employees.  Understanding Congress wanted employers to retain their employees, we interpret the FAQ narrowly.  We hope the SBA will as well.

Attorney James-Allen McPheeters contributed to this post. 

VIDEO: A Conversation on Federal Stimulus Assistance for Independent Contractors

Following is a video of a short conversation between Williams Parker attorneys Thomas B. Luzier and James-Allen McPheeters about federal stimulus availability for small businesses, independent contractors, and sole proprietorships.

For more information on these programs, please contact James-Allen. Keep in mind that aid currently available can be handled directly through the Small Business Administration or with your local banker.

For the latest developments on virus-related matters and the impact on businesses, visit our COVID-19 resource page, which is updated regularly.

Florida Department of Revenue Offers Sales Tax and Property Tax Relief

The Florida Department of Revenue has granted relief to certain adversely affected taxpayers suffering from business interruptions caused by COVID-19.  This relief extends the deadlines for reporting and remitting property tax and sales and use tax for affected taxpayers.

Florida property tax assessments for the 2019 tax year are generally due on March 31, 2020.  The Florida Department of Revenue has applied an extension to all 67 counties in Florida, pushing the due date on property taxes back to April 15, 2020 for all taxpayers, regardless of whether the extent a taxpayer’s ability to pay has been affected by COVID-19.

The Florida Department of Revenue has also provided an extension for businesses to remit sales and use taxes to the state and file related tax returns, but this extension only applies to certain Adversely Affected Taxpayers rather than any taxpayer collecting sales and use tax.  To be treated as an Adversely Affected Taxpayer and qualify for the sales and use tax deadline extensions, a taxpayer’s business must experience one of the following:

  • The business closed in compliance with a state or local government order and had no taxable sales transactions as a result; or
  • The business experienced sales tax collections in March 2020 that are less than 75% of March 2019 sales tax collections; or
  • The business was established after March 2019; or
  • The business is registered with the Department to file quarterly.

Florida’s sales and use tax is the state’s largest source of revenue, producing over $26 billion annually for the state.  Sales and use tax, along with other related tax returns and payments, are generally due on the first day of the month following the month of collection and are considered late if filed after the 20th day of the month.  The Florida Department of Revenue has extended this due date to April 30, 2020, for sales tax collected in March for Adversely Affected Taxpayers.  Taxpayers who do not fall within the definition of Adversely Affected Taxpayer must still follow the normal due date of April 20, 2020.

For businesses unable to meet their March 20 deadline for collections of February sales and use tax, the Florida Department of Revenue has waived penalty and interest on late payments if the taxes are reported and paid by March 31, 2020.

The Florida Department of Revenue’s emergency order extending the property tax filing and payment deadline is available on the Department’s website.

The Florida Department of Revenue’s emergency order extending the sales and use tax filing and remittance deadline is also available on the Department’s website.

Jamie E. Koepsel
jkoepsel@williamsparker.com
(941) 552-2562

Financial Assistance For Small Business Losses Caused By COVID-19

Coronavirus and COVID-19 have changed almost every aspect of our daily routines and behavior. Unfortunately, the changes that are crucial to flatten the curve and mitigate the immediate public health crisis – social distancing, reducing travel, avoiding crowded areas, working remotely, homeschooling – are also causing widespread devastation to small businesses.

The Florida Small Business Emergency Bridge Loan Program is intended to mitigate the impact of COVID-19 on small businesses. According to Governor DeSantis, $50 million will be earmarked to the loan program in the short-term to assist businesses with between two and 100 employees in the industries most affected by COVID-19. The short-term, interest-free (for the first year) working capital loans are intended to “bridge the gap” between the time a major catastrophe hits and when a business has secured longer term recovery resources, such as insurance payments or federal disaster assistance. Eligible small businesses may borrow up to $50,000, and loans of up to $100,000 may be available in special cases. Additional information about the program and online application forms are available at floridadisasterloan.org. The program will accept applications through May 8, 2020, contingent on availability of funds.

The United States Small Business Administration (the “SBA”) Economic Injury Disaster Loan Program provides small businesses with working capital loans of up to $2 million to help overcome temporary losses of revenue. Information about the program is available at disasterloan.sba.gov. Businesses may be eligible to receive loan assistance from both the Florida and SBA programs.

The Internal Revenue Service (the “IRS”) has issued guidance allowing corporate taxpayers to defer up to $10 million of federal income tax payments otherwise due on April 15, 2020 until July 15, 2020, without penalties or interest. The IRS will also be permitting high-deductible health plans to pay for Coronavirus testing and treatment without waiving their status. Additional information and details about tax deferment and treatment of insurance benefits is available through the IRS website, www.irs.gov.

While it will not provide immediate economic assistance, Florida business owners should complete the Business Damage Assessment Survey, available online at floridadisaster.biz. The Florida Department of Economic Opportunity will use the information obtained from the survey to determine appropriate actions to implement and apply for various relief programs in the longer term.

Bailey S. Lowther
(941) 552-2565
blowther@williamsparker.com

IRS Issues Small Business Tax Reform Regulations, Clarifies Combinations of Business Entities

The tax reform legislation Congress passed in December left many details unanswered, especially regarding the small business tax benefit giving some businesses a twenty percent deduction against their income if the businesses satisfy certain employee payroll and property ownership thresholds. On August 8, the Internal Revenue Service issued proposed regulations attempting to address many of the open questions.

One of the biggest questions was whether taxpayers can treat employee payroll and property owned across multiple business entities (like corporation and limited liability companies) as a single combined business for the purpose of satisfying the employee payroll and property ownership tests.

For most types of businesses, the regulations generally would allow aggregation of property and payroll amongst different entities (such as partnerships and S corporations) if the same group of persons own the majority of the business for the majority of the year, the entities satisfy certain integration and interdependence tests, and the taxpayers follow specified filing procedures.

Those rules will not apply to most professional businesses, which are subject to limitations in the use of the small business deduction. These businesses are subject to rules forcing aggregation of income to prevent circumvention of the deduction limitations.

The rules are not fully binding until finalized, but IRS will apply the anti-abuse rules retroactively. Taxpayers can rely on these proposed rules until they are finalized.

We will provide more perspective on these important new rules soon. In the meantime, for more details, you can read the proposed regulations at irs.gov.

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037