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COVID-19 LEGISLATIVE
OVERVIEW
HR 6074 – Coronavirus Preparedness and Response Supplemental Appropriations(CPRSA) Act (March 6, 2020) Economic Injury Disaster Loan Program (EIDL)
HR 6201 – Families First Coronavirus Response (FFCR) Act (March 14, 2020) Sick Leave and Family Medical Leave
HR 748 – Coronavirus Aid, Relief, and Economic Security (CARES) Act (March 27, 2020) Individual Stimulus / Rebate Paycheck Protection Program (PPP) Small Business Debt Relief Program Emergency Economic Injury Grant (EEIG) Tax Provisions
CARES ACT Webinar Overview
EIDL Program (Disaster Loans)
The EIDL Loan Program has been in existence for many years through the SBA
HR 6074 expanded the program by declaring “disasters” in most state and local jurisdictions b/c of the Covid-19 Pandemic
Loan Amounts – up to $2m
Terms – 30 year; 3.75% (for profit), 2.75% (non-profit)
Deferral – 1 year (interest accrues)
Eligibility – small business (defined by SBA), however, all businesses with less than 500 employees eligible; most non-profits; other co-ops, sole proprietors, independent contractors
EIDL Program (Disaster Loans)
Eligible Uses: working capital (includes payroll and
other expenses); repayment of debt; A/P; other bills in normal course of business. Proceeds can NOT be used to replace lost revenue or acquire capital equipment.
Emergency Economic Injury Grant (EEIG):makes available a $10k grant for
all EIDL applicants regardless of approval of loan application.
EIDL Program (Disaster Loans)
Miscellaneous: personal guarantee required (only loans over $200k) collateral required for loans over $25k financial analysis of ‘ability to repay’ performed credit check performed waiver of ‘credit available elsewhere’ provision waiver of tax return requirement must be in operation as of January 31, 2020.
Interaction with Paycheck Protection Program Loan (PPP): may apply for both EIDL and PPP, however, funds cannot be used
for same purpose If EEIG received, such amount will reduce PPP loan forgiveness
amount. EIDL loans may be refinanced into PPP loan.
Application through SBA https://covid19relief.sba.gov
SBA Affiliation Rules
• The CARES Act expanded financial assistance available to qualifying small businesses through 7(a) loans under the new Paycheck Protection Program (PPP) and the 7(b)(2) economic injury disaster loans.
• To be eligible for this assistance, a business must have: 1) fewer than 500 employees OR 2) fewer than the number of employees the SBA has designated as the size standard based on a company’s applicable 6-digit NAICS code, whichever is GREATER.
• With limited care-out exceptions, the SBA affiliation rules will play a determining factor as to eligibility of a particular business regarding an SBA loan. This could have a significant impact on PE/VC-backed companies.
SBA Affiliation Rules
Business entities are considered to be affiliates ofone another by the SBA when:• one controls or has the power to control theotherOR
• a third party or parties controls or has thepower to control both.
In either circumstance, the evaluation of control needs to be determined based upon equity ownership and control rights.
SBA Affiliation Rules
On April 3, 2020, the Small Business Administration (SBA) and the US Treasury issued guidance on Affiliation rules applicable to the Paycheck Protection Program (PPP). The guidance outlines four major tests that can establish affiliation for the PPP:1. Affiliation based upon ownership.2. Affiliation rising under stock options,
convertible securities and agreements to merge.
3. Affiliation based upon management.4. Affiliation based on identity of interest.
SBA Affiliation Rules
Test 1 - Affiliation based upon ownership• For equity ownership – entity owning or has
the power to control more than 50 percentof the voting equity.
• If no entity or individual is found to control based uponownership (none over 50%), SBA will deem theBoard, President of CEO, managing member, partnerwho controls the management of the entity to be incontrol.
• But, a minority shareholder will be deemed to controlif, under the governance documents, it has the abilityto prevent a quorum or otherwise block action by theboard or shareholders.
Test 2 - Affiliation rising under stock options, convertible securities and agreements to merge• When determining size and power to control the SBA
requires options, convertible securities and agreements to merge (including those in principle) to be treated as if those rights have been exercised.
• Agreements that provide a possibility of a merger or sale at a later date should NOT be considered.
• Options, convertible securities and agreements to merge incapable of fulfillment, unenforceable or probability deemed extremely remote are NOT considered.
• SBA will NOT take into considerations “agreements” that appear to terminate control before actually doing so or recognize the “ability” to divest all or part of their ownership interest to avoid affiliation.
SBA Affiliation Rules
Test 3 – Affiliation based upon management
• If CEO/President/Partner/Managing Member of a company also controls the management of another company.
• If individual or company controls the Board or management of their company and Board or management of another Company
• If individual or company controls management of another company through a management agreement.
SBA Affiliation Rules
Test 4– Affiliation based on identity of interest
• Interest between close relatives (defined in 13 CFR 120.10) with identical or substantially similar business or economic interest.
The affiliation rules are WAIVED for a business under 500 employees with a 1) NAICS code beginning with 72, 2) recognized as a franchise by SBA and 3) any business receiving financial assistance from a company licensed under section 301 of the Small Business Investment Act (SBIA).
SBA Affiliation Rules
Paycheck Protection Program Loan (PPP)
Added by the CARES Act (HR 748) Loan Amounts – up to $10m computed using average monthly
‘payroll costs’ (prior 12 month period or 2019) * 2.5 Option to use 1/1/20 - 2/29/20 if ‘not in business’
2/15/19 - 6/30/19 Payroll costs include (updated for SBA/Dept of Treasury
Guidance issued late 4/6/20): salary, wage, commission or other similar
compensation (such amount should include taxes withheld for employment taxes. GP's are included. Compensation is capped @ $100k)
vacation, family, medical or sick leave allowance for dismissal/separation (excludes HR 6201 mandated sick/FMLA leave)
group health care benefits (includes insurance premiums, disability) paid by Employer
retirement benefits paid by Employer
Paycheck Protection Program Loan (PPP)
Payroll Costs (continued) Do not include Employer funded employment taxes Do not include compensation to employees that reside
outside U.S. Do not include payments to independent contractors (as
of 4/7/20 - note discussion point regarding timing of new guidance)
SBA Guidance issued 4/6 allows applicant to choose 2019 or prior 12 months as period for calculating average monthly payroll costs. Special seasonal employer rules apply.
Terms: Currently 2 years – CARES Act provides for up to 10 years Current rate 1.0% loan forgiveness available (discussed later)
Deferral – 6 month with eligibility up to 1 year (interest accrues during deferral period)
Paycheck Protection Program Loan (PPP)
Eligibility – defined to include: Small business less than 500 Employees (or pursuant to
SBA size standard index) 501(c)(3) non-profit organizations 501(c)(19) veteran organizations 31(b)(2)(C) Tribal organizations Sole proprietorships and independent contractors Self-employed individuals ‘Per location’ rules for Food/Accommodations Affiliation Rules (discussed earlier) – waived for franchises
Eligible Uses – payroll costs, continued health care benefits during periods
of sick/family leave, interest on mortgage obligations, rent, utilities, interest on any debt obligation entered into prior to 2/15/20
Paycheck Protection Program Loan (PPP)
Loan forgiveness What’s included?
Qualified amounts spent during 8-week period following approval of PPP loan for: payroll costs, interest on mortgage obligations, rent, utilities
Loan forgiveness will be reduced for either: reduction in FTE’s (FTEs for 8-week period / FTEs measurement
period) or reduction in salary greater than 25% to employees making less
than $100k Measurement Period: at election of applicant either (2/15/19-
6/30/19 OR 1/1/20-2/29/20; seasonal employers use the 2/15/19-6/30/19)
Loan reduction pursuant to either (1) a reduction in FTE's or (2) a reduction in salary is disregarded if between 2/15/20-4/26/20 there is a reduction (compared to 2/15/20) and the applicant by 6/30/20 eliminates the reduction in FTEs or eliminates the reduction in salary.
How do I obtain loan forgiveness? Apply to lender with documentation verifying FTE’s, amounts
spent on qualified amounts. Lender must provide a decision regarding loan forgiveness within 60 days
Paycheck Protection Program Loan (PPP)
Miscellaneous No personal guarantee, no collateral required, no
‘credit available elsewhere’ required Only required to (1) be in business and (2) have payroll
costs as of 2/15/20 Must provide good faith certification that:
loan is necessary to support ongoing operations due to uncertain economic conditions
the funds will be used to retain payroll or make mortgage, lease or utility payments, and
business does have an existing SBA loan for same purpose
Will I be taxed on loan forgiven?No, HR 748 specifically provides that loans forgiven
pursuant to PPP will not be included in federal taxable income (note that states may tax such forgiveness – this is TBD).
Employers receiving PPP loans are not eligible for worker retention credits and if a PPP loan is forgiven are not eligible for deferral of payroll taxes
Paycheck Protection Program Loan (PPP)
FAQs Eligibility – how will foreign owners /
operations impact my application? Payroll costs – Do I use 2019 or prior 12
months? Payroll costs – Do I include withholding or
employment taxes including FICA federal or state payroll taxes?
Payroll costs – can I include payments to independent contractors?
Payroll costs measurement period – what if I wasn’t in business 2/15/19 – 6/30/19?
Banks – where do I reach out if my bank won’t accept my application?
Paycheck Protection Program Loan (PPP)
FAQs / Uncertain Elements Timing – when can I expect the funds? Loan amount – can I receive a loan for less
than 2.5x payroll costs? Loan forgiveness – what happens if I
terminate/furlough employees but bring them back?
Loan forgiveness – what does the 25% rule mean?
General – if I make a mistake, what will the bank do with my application?
Tax Credits – if I receive a PPP loan, am I eligible for the payroll retention credit or payroll tax deferral?
Paid Sick Leave / Paid FMLAHR 6201
Families First Coronavirus Response Act (HR 6201) mandates sick leave and family medical leave be paid by ‘covered’ employers (less than 500 employees) pursuant to specified conditions.
Paid Sick Leave – HR 6201 provides that ‘covered’ employers provide paid sick leave to employees that are unable to work (or telework) for the following reasons:
1. Employee is subject to government ordered quarantine or isolation
2. Employee has been advised by a healthcare provider to self-quarantine
3. Employee has symptoms of Covid-19 and is seeking medical diagnosis
4. Employee is caring for individual subject to either (1) or (2) above
5. Employee needs to care for a child whose school or place of daycare is closed or whose childcare provider is unavailable due to Covid-19
6. Employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services
Paid Sick Leave / Paid FMLA - HR 6201
If Employee is unable to work for (1), (2), or (3) above, then Employer provides 80 hours of sick leave pay at regular rate of pay capped at $511/day ($5100 in aggregate)
If Employee is unable to work for (4), (5), or (6) above, then Employer provides 80 hours of sick leave pay 2/3 at regular rate of pay capped at $200/day ($2,000 in aggregate) Intermittent Leave
Covers all employees regardless of tenure
Paid Family Medical Leave – HR 6201 provides that ‘covered’ employers provide paid family medical leave to employees that are unable to work (or telework) related to public health emergency defined as need to care for child (18 & under) whose school or place of care has been closed due to Covid-19. Paid FMLA leave is 2/3 regular rate of pay capped at
$200/day for 10 weeks following Paid Sick Leave above Covers employees employed for at least 30 days
Paid Sick Leave / Paid FMLA - HR 6201
Will I get reimbursed for these ‘mandated’ Sick/Medical Leave payments? Reimbursement is provided through federal
employment tax credits applied against employer funded social security taxes
Unused credits will be refunded Certain limitations on credits (WOTC and
R&D) Credits are included in federal taxable
income In practice, employers should offset
deposits with expected credits and reconcile such amounts on quarterly 941.
Covid-19 Tax Considerations
Most applicable tax items are contained in the CARES Act, however, taxpayers should also be aware of tax deadline extensions: Federal filing and payment of all individual and
corporation income tax returns and Q1 estimates originally due 4/15/20 to 7/15/20
Many state deadlines extended (CT Corp filing and payment extended to 6/15/20; CT Individual filing and payment deadline to 7/15/20; CT PET filing deadline extended to 4/15/20 (payment deadline extended to 6/15/20); Individual Q1 & Q2 payments extended to 7/15/20
Covid-19 Tax Considerations
Business Tax Considerations Employee Retention Payroll Tax Credit Payroll Tax Deferral Net operating loss modifications Business Interest Expense Deduction
LimitationsQualified Improvement Property AMT Carryovers Charitable Contributions Loan Forgiveness (covered earlier) Sick/FMLA Paid Leave – tax credits
(covered earlier)
Covid-19 Tax Considerations
Individual Tax Considerations Recovery Rebates Retirement Plans Charitable Contributions Student Loans
FML Contact Information
Frank MilonePartner, Assurance & Advisory ServicesOffice: 860-657-3651
Bill ClaffeyPartner, Tax ServicesOffice: 860-657-3651
FML - COVID-19 Resources for Businesses and Individuals at www.fmlcpas.comhttp://www.fmlcpas.com/news-knowledge/coronavirus-updates-resources-for-business/