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Category Archives: COVID-19

Single Audits and COVID-19 Relief Funding

17 Friday Apr 2020

Posted by Richard Watson in COVID-19, Economics and Taxation, Uncategorized

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COVID-19, Nonprofit Organizations, Single Audits, Stimulus Programs

Something to be aware of if you are a nonprofit organization is the potential effect of COVID-19 relief funding on single audits. A nonprofit organization which expends $750,000 or more in federal financial assistance within one year must have a single audit. Grants, cost reimbursement contracts and loans, among other sources of funding, can be included in determining whether the $750,000 threshold is achieved. The Uniform Guidance is the authoritative set of rules and requirements for Federal awards.

The AIPCA has asked the U.S. Office of Management and Budget (OMB) a series of questions about the impact of relief funding on the need to have a single audit which you can download here.

Here is what the AICPA has said regarding whether Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDL) are subject to single audit:

One of the most common questions we have received is whether SBA PPP loans obtained by NFPs are subject to the Uniform Guidance single audit requirements. The good news is that we have recently received an answer to this question. Based on recent discussions with SBA staff, we have been informed that PPP loans made to NFPs will not be subject to single audit.

On the other hand, SBA informed us that loans made to NFPs under the EIDL program are considered a direct loan program disbursed from SBA to loan recipients. Therefore, these loans are considered federal financial assistance and are subject to the Uniform Guidance single audit requirements.

On March 19, 2020, the OMB released a memo apparently allowing a six-month extension for auditees to submit their single audit. Although according to the AICPA the memo has caused confusion:

The memo is not [emphasis added] instructing federal agencies to provide a blanket waiver for all recipients impacted by COVID-19. Instead, its guidance primarily relates to recipients receiving funds disbursed from the approximately $9 billion in emergency supplemental appropriations for coronavirus preparation and response (H.R.6074). Note that there could be cases where agencies may decide to apply the guidance in the memorandum for existing awards that are deemed by the agency to be for continued research and services necessary to carry out the emergency response relating to COVID-19.

Guidance is expected soon.

Relief Provisions for Individuals

07 Tuesday Apr 2020

Posted by Richard Watson in COVID-19, Economics and Taxation

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COVID-19, Stimulus Programs

Relief programs of potential benefit to individuals under the CARES Act and the Families First Coronavirus Response Act include the following. Additional information is available at the IRS Coronavirus Tax Relief page.

Recovery rebates for individuals

To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $112,500 (head of household), and $150,000 (joint). There is no income floor or ”phase-in”-all recipients who are under the phaseout threshold will receive the same amounts.

The rebates will be paid out in the form of checks or direct deposits. The IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.

Unemployment Benefits

Includes an additional $600 on top of the current weekly benefit amount.

Waiver of 10% early distribution penalty

The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Charitable deduction liberalizations

The CARES Act makes changes to the rules governing charitable deductions:

(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.

(2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.

(3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required.

RMD requirement waived for 2020

In general, Code Sec. 401(a)(9) requires a retirement plan or IRA owner to take required minimum distributions (RMDs) annually once the owner reaches age 72.

The CARES Act provides that the RMD requirements do not apply for calendar year 2020 to: (I) a defined contribution plan described in Code Sec. 403(a) or Code Sec. 403(b) ; (II) a defined contribution plan which is an eligible deferred compensation plan described in Code Sec. 457(b) but only if such plan is maintained by an employer described in Code Sec. 457(e)(1)(A) ; or (III) an individual retirement plan.

The RMD requirements also do not apply to any distribution which is required to be made in calendar year 2020 by reason of: (I) a required beginning date occurring in calendar year 2020, and (II) such distribution not having been made before January 1, 2020.

Two Weeks of Emergency Paid Sick Leave

The law requires employers with fewer than 500 employees (including nonprofits) and government employers to provide their employees two weeks of paid sick leave, paid at the employee’s regular rate, to quarantine or seek a diagnosis or preventive care for the coronavirus. It also requires payment at two-thirds the employee’s regular rate to care for a family member for those purposes or to care for a child whose school has closed or child care provider is unavailable due to the coronavirus. These provisions expire at the end of December 2020.

Twelve Weeks of Emergency Family and Medical Leave

The law expands the number of workers who can take up to 12 weeks of job-protected leave under the Family and Medical Leave Act for coronavirus-related reasons. After the two weeks of emergency paid leave (above), employees of employers with fewer than 500 employees will be eligible to receive at least two-thirds of each employee’s usual pay. Employees must have been employed for at least 30 days to qualify and meet a “qualifying need related to a public health emergency.” The qualifying reasons for the emergency paid leave are caring for a child if the child’s school or childcare center is closed due to coronavirus. The provisions would also expire at the end of 2020.

 

See additional information at:

Guidance for Stay-at-Home Order, Sacramento County (Wagner Kirkman Blaine Klomparens & Youmans LLP)

Defending Against COVID-19 Cyber Scams

Covid-19 Stimulus Programs for Small Businesses

02 Thursday Apr 2020

Posted by Richard Watson in COVID-19, Economics and Taxation

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COVID-19, Paycheck Protecion Program, SBA, Stimulus Programs

Three major pieces of legislation have been signed into law creating several relief programs. The following is a brief summary of some of these programs (the links provide sources of additional information). You can expect changes and clarifications, but due to funding caps and the number of businesses expected to apply for assistance, it is important to determine the course of action which best suits your organization.

According to the Journal of Accountancy as of April 16, the Paycheck Protection Program quickly exhausted the $349 billion in initial funding:

SBA has approved more than 1.6 million loans submitted by nearly 5,000 lenders. That has accounted for more than 14 years’ worth of loans in less than 14 days, according to a joint statement issued Wednesday night by Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza. Mnuchin and Carranza also urged Congress to approve $250 billion in additional funding.

These programs aim to encourage employers to retain employees through a combination of: loans or credits towards payroll taxes for businesses which retain employees; payroll tax credits to cover the cost of providing coronavirus-related leave; and delayed payment of the employer-portion of payroll taxes.

Participation in some of these programs exclude one from participation in another, so they should be carefully analyzed.

SBA Paycheck Protection Program Loans

The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The Paycheck Protection Program will be available through June 30, 2020.

Small businesses and sole proprietorships affected by the coronavirus pandemic can apply for loans under the federal Paycheck Protection Program beginning Friday, April 3. Starting April 10, independent contractors and self-employed individuals can apply.

Loan forgiveness is based on the employer’s maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease. You can apply through any existing SBA 7(a) lender, and the SBA is advising businesses to contact their local bankers.

The National Council of Nonprofits has a chart describing the different loan programs under the CARES Act.

Businesses participating in Paycheck Protection Program Loans may not receive the Employee Retention Payroll Tax Credit described below.

Employee Retention Payroll Tax Credit

A refundable tax credit has been created to assist employers in retaining employees. The credit is computed at 50% of qualified wages paid by eligible employers for up to $10,000 paid to each employee between March 13, 2020 and Dec. 31, 2020.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Qualifying employers must fall into one of two categories:

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

These measures are calculated each calendar quarter.

Eligible Employers who paid qualified wages between March 13, 2020 and March 31, 2020, inclusive, will report 50% of those wages together with 50% of any qualified wages paid during April, May, and June 2020 on their 2nd quarter Form 941, Employers Quarterly Federal Tax Return, to claim the employee retention credit. Employers should not include the credit on their 1st quarter Form 941.

An eligible employer may not receive the Employee Retention Credit if the employer receives a Small Business Interruption Loan under the Paycheck Protection Program described above.

Coronavirus paid sick leave and family leave

Eligible small and midsize employers can claim refundable payroll tax credits, designed to reimburse them, dollar for dollar, for the cost of providing coronavirus-related leave to their employees.

The Department of Labor has issued this FAQ to address questions about the program.

Delayed payment of employer portion of payroll taxes

Employers (including self-employed individuals) will be able to postpone payment of 50% of 2020 employer-portion of payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022.

Also see this recently issued COVID-19-Related Tax Credits for Required Paid Leave.

Insurance Coverage

The question naturally arises as to what, if any losses insurance policies will cover. As this is a highly complex matter that is likely to be litigated, no general predictions can be made.

IRS Scam Warnings

People are urged to take extra care during this period. “The IRS isn’t going to call you asking to verify or provide your financial information so you can get an economic impact payment or your refund faster. That also applies to surprise emails that appear to be coming from the IRS. Remember, don’t open them or click on attachments or links. Go to IRS.gov for the most up-to-date information.”

 

Information from various agencies can be found at these links:

Families First Coronavirus Response Act Poster

Internal Revenue Service

Franchise Tax Board

California Office of Business and Economic Development

National Council of Nonprofits

State of California

90-Day Mortgage Payment Relief

Eviction Protection for Renters

California Association of Nonprofits

Wagner Kirkman Blaine Klomparens & Youmans LLP covid-19 resources

U.S. Chamber of Commerce

FEMA

Candid – Listing of Funds for Coronavirus Relief

Recent Posts

  • The Sash My Father Wore, or How the Orange Came to Ireland April 26, 2020
  • Single Audits and COVID-19 Relief Funding April 17, 2020
  • Relief Provisions for Individuals April 7, 2020
  • Covid-19 Stimulus Programs for Small Businesses April 2, 2020
  • “Been a Breach of Promise” October 5, 2019

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