Month: April 2020

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UPDATE – SBA Adds Guidance Regarding Necessity Certification Under the Paycheck Protection Program

On April 23, 2020, the Small Business Administration (“SBA”) issued additional guidance (in an update to its previously published FAQs, a current version of which can be found here) regarding whether businesses owned by large companies qualify for a Paycheck Protection Program (“PPP”) loan under Section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

Specifically, the SBA has indicated that in addition to reviewing other applicable eligibility requirements and rules, a borrower must assess their economic need for the PPP loan under the standard established by the CARES Act and the PPP regulations that existed at the time of loan application.

As part of the PPP loan application process, borrowers are required to make certain certifications, including certifying in good faith that “[c] urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. ”

The SBA, in the newly added question #31 of the FAQs, expands on this necessity certification by providing that a borrower must take into account (1) their current business activity, and (2)  their ability to access other sources of liquidity sufficient to support the borrower’s ongoing operations in a way that does not have a significant detriment to their business; notwithstanding the carve-out created by the CARES Act that a borrower not be required to show they are unable to obtain credit elsewhere in order to be eligible for a PPP loan (“no-credit-elsewhere” is an eligibility requirement for other SBA loans).  The new FAQ goes on to state, by way of example, that it is unlikely that a public company with substantial market value and access to capital markets would be able to make the aforementioned certification in good faith.

A borrower that applied for a PPP loan prior to the addition of the new FAQ (April 23, 2020) will be deemed to have made the required necessity certification in good faith, despite such certification not being accurate in light of the additional SBA guidance, if the borrower returns all PPP loan proceeds it received in full by May 7, 2020.

While the example in the new FAQ is directed at public companies, the general guidance set forth in the new FAQ is applicable to all borrowers (including private companies).  As such, all borrowers should evaluate their necessity certification based on this new guidance to determine whether they meet the standards as set forth in the new FAQ and whether such loan proceeds should be returned.

Importantly, making any knowingly false statement in the PPP loan application (which includes the certifications) could subject the borrower (and/or person making such statements) to criminal punishment including imprisonment and substantial fines.

In any event, it is recommended that all borrowers take steps to adequately document that the PPP loan was necessary to support their ongoing operations given economic uncertainty as well as that the borrower did not have access to liquidity (beyond the PPP loan) to support such operations in a way that would not be significantly detrimental to the borrower’s business.

About the Authors:

J. Troy Terakedis is a Member in Dickinson Wright’s Columbus office. He can be reached at 614.744.2589 or tterakedis@dickinsonwright.com.

Peter J. Kulick is a Member in Dickinson Wright’s Lansing office. He can be reached at 517.487.4729 or pkulick@dickinsonwright.com.

M. Katherine VanderVeen is an Associate in Dickinson Wright’s Detroit office. She can be reached at 313.223.3098 or mvanderveen@dickinsonwright.com.

  

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New Deadlines for Retirement Plans, Tax Filings and Paid Leave Policies

The Coronavirus Aid, Relief and Economic Security Act (“CARES”), and IRS and Department of Labor (“DOL”) rules establish new and revised deadlines for retirement plans and other benefit programs.  The following is an outline of key dates:

Item Date
Paid Leave 

Effective date for paid sick and childcare leave under Families First Coronavirus Relief Act (“FFCRA”) for covered employees

 April 1, 2020
Reimbursable tax credits under FFCRA for paid leave, cost of healthcare for employees on paid leave and cost of employer-paid Medicare Tax Due Dates for Quarterly Form 941 for FFCRA leave taken after April 1, 2020 and before December 31, 2020
Retirement Plans 

Coronavirus-Related Distributions (“CRD”)

for eligible participants  up to $100,000

Optional – Plans Are Not Required to Offer

 CRD Distributions made between January 1, 2020 and December 31, 2020
Participant Loan Maximum Increased from $50,000 to $100,000 New Loans for Eligible Employees taken from March 27, 2020 to September 22, 2020
Participant Loan Repayment – One Year Suspension Applies to Loan Repayment Dates for Eligible Employees between 

March 27, 2020 – December 31, 2020
Plan Amendment for Coronavirus-Related Distributions, Required Minimum Distributions and Loan Changes December 31, 2022 for calendar year plans
401(k) Excess Deferral Distributions July 15, 2020 (extended from March 15, 2020)
Form 5500 No Filing Date Extension for Calendar year Plans 

Form 5500 filings due April 1-July 14, 2020 are extended to July 15, 2020
Defined Benefit Plan 

PBGC 4010 and Premium Payments Due

April 1 – July 14, 2020

 July 15, 2020
Defined Benefit Plan 

Minimum Required Funding Contributions Due in 2020

 January 1, 2021 – September 15, 2021
Student Loan Debt 

Employer Paid Student Loan Debt up to $5,250

 Payments made to lender or directly to employee between March 27, 2020 and January 1, 2021

About the Author: Roberta Granadier is an attorney in Dickinson Wright’s Troy office, where she practices in the area of employee benefits law. She has extensive experience with benefits issues in corporate transactions, executive compensation, ESOPs and public retirement plans. Roberta can be reached at 248-433-7552 or RGranadier@dickinsonwright.com and you can visit her bio here.

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Relief for Partnerships

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) offers tax relief which may be beneficial to entities taxed as partnerships. These provisions include (i) retroactive relief for entities taxed as partnerships by temporarily increasing the interest deduction limitation from 30% to 50% of adjusted taxable income, and (ii) clarifying that “qualifying investment property” qualifies for bonus depreciation. These changes are retroactive to the 2018 and 2019 tax years. On April 8th, the IRS issued Rev. Proc. 2020-23 to provide procedures for partnerships subject to the Centralized Partnership Audit Regime enacted in the Bipartisan Budget Act of 2015, which includes partnerships that either did not or could not elect out of the Centralized Partnership Audit Regime provisions (“BBA Partnerships”), to allow a BBA Partnership to amend its Form 1065 U.S. Return of Partnership Income. In the absence of Rev. Proc. 2020-23, a BBA Partnership could not amend its Form 1065. Its only means of taking advantage of the retroactive CARES Act provisions would have been the filing of an Administrative Adjustment Advance, which only benefits a partner on a current income tax return, many of which would not have eligible for filing until 2021. The ability to amend the Form 1065, provides for a more immediate benefit for BBA Partnerships and their partners.

If you have questions about the CARES Act and its impact on partnerships, please call Emily Dorisio at 859.899.8714 or one of the other tax attorneys in our Tax Group.

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Alternate Valuation Date to Reduce Estate Tax

If your loved one recently died with a taxable estate, you might consider using an alternate valuation date to reduce estate tax. A Federal Estate Tax Return Form 706 is due 9 months after date of death, and tax is due on an estate with assets that exceed $11.58 million in 2020. An individual’s assets can be valued as of date of death, or an “alternate valuation date” can be used which values the property at 6 months after date of death. If your loved one died within the past 6 months with a taxable estate, you should work with your estate planning attorney or CPA to calculate whether electing an alternate valuation date will reduce estate tax. These savings can be significant. For more information, contact Joan Skrzyniarz in the Troy, Michigan office at 248-433-7521.

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Even COVID-19 Can’t Stop the Scammers

With the extension of the income tax filing season through July 15th and the forthcoming stimulus funds that will be distributed to taxpayers, it is important for everyone to stay vigilant to avoid scammers and fraudsters who continue to prey on taxpayers. If you receive a stimulus check in the next few weeks, it is likely a fraudulent check. The IRS will first be sending stimulus money through direct deposit to those taxpayers with direct deposit information already on file with the IRS. For others, the IRS will be sending checks, but it will be several weeks before they begin to do that.

Be extremely wary of giving anyone your personal or business information, particularly if they represent that they are from the IRS or Treasury Department. The IRS will never ask for personal or business information by email, social media, direct calling or any other medium. Nearly all IRS initiated communication between the IRS and taxpayers is through the mail and the IRS will never ask a taxpayer through mail or otherwise to go to a website to verify personal or business information. The Treasury Department advises on its website (home.treasury.gov) that no one should respond to calls, emails or other communications claiming to be from the Treasury Department and offering COVID-19 related grants or stimulus payments in exchange for personal financial information or an advance fee, or charge of any kind, including the purchase of gift cards. The applies equally to communications from the IRS. In this time of COVID-19 and economic uncertainty, it is best to stay home, stay healthy and stay wary.

For more information, please contact Emily Dorisio in the Lexington, Kentucky office at 859.899.8714, or any one of the attorneys in our Tax Group.