July 21, 2020 UPDATE: The Federal Reserve announced that the Main Street Lending Program has been modified to allow participation from eligible nonprofit organizations including educational institutions, hospitals, and social service organizations. Eligible organizations must meet the following eligibility criteria:

• In operation at least 5 years
• Have at least 10 employees
• Have total non-donation revenues equal to or greater than 60% of expenses from 2017 through 2019
• Have 2% or more operating margin in 2019
• Have at least 60 days cash on hand
• Have a current debt repayment capacity of at least 55% measured by a ratio of cash, investments, and other resources to outstanding debt and certain other liabilities

  Learn more regarding the Main Street Lending Programs available to nonprofit organizations   Nonprofit organizations are among the organizations affected by the COVID-19 pandemic. While several relief programs are available through the federal government, determining when your organization is eligible for each program can be confusing, due to differing criteria. Here, we explore three loan programs offered through federal government programs or federal legislation due to the COVID-19 crisis and the eligibility of nonprofit organizations to apply. Economic Injury Disaster Loans The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) is a program, administered through the SBA, that is available to eligible organizations suffering economic injury due to a declared disaster. Because COVID-19 is considered a declared disaster, these loans are available in all 50 states as well as Washington D.C., Guam, the Virgin Islands, Puerto Rico, the Northern Mariana Islands, and American Samoa. Loans awarded to nonprofit organizations are up to $2 million, carry a 2.75 percent interest rate, and are amortized over a period of up to 30 years. Payments are deferred for the first year. The following nonprofit organizations are eligible to apply:

• Private nonprofit organizations that are non-governmental agencies or entities that currently have an effective ruling letter from the IRS granting tax exemption under sections 501(c), (d), or (e) of the Internal Revenue Code of 1954,
• Private nonprofit organizations that have satisfactory evidence from the State that the non-revenue producing organization or entity is a non-profit one organized or doing business under State law, or
• Faith-based organizations. (For more information regarding faith-based organizations, please visit the SBA’s Faith-Based Organizations FAQs page).

  In addition to the loan, applicants may apply for an emergency advance (or emergency grant) of up to $10,000, based on the organization’s employee headcount. While this advance or grant awarded does not need to be repaid (even if the applicant declines the loan), it will reduce forgiveness on the Paycheck Protection Program loan, which is discussed further below. Currently, the EIDL program is only accepting new applications from agricultural enterprises due to funding limitations. It is unknown whether additional applications from other organizations, including nonprofit organizations, will be accepted in the future. Organizations who already applied for this program may check on the status of their application by contacting the SBA’s Customer Service Center at 1-800-659-2955 (TTY: 1-800-877-8339) or DisasterCustomerService@sba.gov. June 15, 2020 UPDATE: The SBA is once again accepting applications from all eligible organizations. It is unknown how much funding is still available, but applicants are awarded funds on a first-come, first-served basis. Interested organizations should visit sba.gov/disaster. Paycheck Protection Program The Paycheck Protection Program (PPP) is a loan program created through the CARES Act which was passed by Congress and signed into law on March 27, 2020. Unlike the EIDL program, the PPP is administered by lenders such as banks. The program offers eligible organizations loans equal to roughly 2.5 months of 2019 payroll costs (up to $10 million in total loan proceeds), to be used on specified payroll costs, rent, mortgage interest, and utilities. If borrowers spend the funds in accordance with the guidelines and maintain employee headcount and salaries and wages, the loan may be forgiven up to 100 percent. Loan proceeds not forgiven will be subject to a 1 percent interest rate and 2-year amortization period. Some nonprofit organizations are eligible to apply for PPP loans. Specifically, CARES allows 501(c)(3) nonprofit organizations, 501(c)(19) veterans organizations, and certain tribal business concerns to apply. Note that the organization must have under 500 employees (or otherwise meet the SBA Size Standard for its NAICS code), as well as agree to certifications that can be found on the PPP application and PPP forgiveness application. Funding is still available for this program and nonprofit organizations can still apply. Interested organizations should contact their lender to begin the application process. Note that guidance on this program continues to evolve, and the latest updates on both the loan process and the forgiveness process can be found at https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. In addition, as Congress continues to negotiate changes to the program applicants and borrowers should watch for changes or stay in touch with their advisors to ensure they are complying with the latest program guidelines. June 15, 2020 UPDATE: While funds remain, loans will only be issued through June 30, 2020. Interested organizations should contact their lender to begin the application process. Main Street Lending Program The Main Street Lending Program (MSLP) offers loans to eligible small and medium-size businesses affected by COVID-19. The program offers loans, starting at $500,000 based on the business’s debt structure and 2019 earnings before interest, taxes, depreciation, and amortization (EBITDA). According to the program’s Frequently Asked Questions, nonprofit organizations are currently not eligible for this program. The document states: “While non-profit organizations are not currently eligible under the Program, the Federal Reserve acknowledges the unique needs of non-profit organizations, many of which are on the front lines providing critical services and research to fight the pandemic. EBITDA is the key underwriting metric required for the [loan program]. The Federal Reserve recognizes that the credit risk of non-profit organizations, as a matter of practice, is generally not evaluated on the basis of EBITDA. The Federal Reserve and the Treasury Department will be evaluating the feasibility of adjusting the borrower eligibility criteria and loan eligibility metrics of the Program for such organizations.” For more information on this program, visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm. June 15, 2020 UPDATE: The Federal Reserve announced that it is seeking feedback through June 22 on its proposal to expand this program to small and medium-sized nonprofit organizations. If approved, eligible nonprofits may include organizations that:

• are considered a tax-exempt organization under section 501(c)(3) or 501(c)(19) of the Internal Revenue Code
• were in sound financial condition before the coronavirus pandemic and could benefit from additional liquidity to manage through this challenging period
• employee a minimum of 50 and maximum of 15,000 employees
• have operational history of at least five years
• have endowments of no more than $3 billion.

  Additional financial thresholds based on operating performance, liquidity, and ability to repay debt may apply. In addition, the Main Street Lending Program has also been expanded for all organizations with a new minimum loan size of $250,000. To learn more regarding the proposal to expand the program to nonprofits, visit the Federal Reserve’s press release at https://www.federalreserve.gov/newsevents/pressreleases/monetary20200615b.htm. For additional information about general program changes, visit https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.   For more information about relief options available to nonprofit organizations, contact your HBK Advisor.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, eliminated the Required Minimum Distribution (RMD) from defined contribution plans and IRAs for 2020. The waiver of RMDs for 2020 does not apply to defined benefit plans. For taxpayers who had already taken their RMD for 2020, the law provided a 60-day rollover period during which the funds could be put back into an eligible retirement account without triggering tax consequences. On Tuesday, June 23, 2020, the IRS issued Notice 2020-51 which extends the period that RMD recipients have to rollover the RMD taken this year until August 31, 2020. Thus, regardless of when the RMDs were taken in 2020, a recipient has until the end of August to roll the funds into an eligible retirement plan.

In addition to the rollover opportunity, the notice provides that an IRA owner or beneficiary who has already received an RMD for 2020 may repay the funds to the distributing IRA by August 31, 2020. The repayment will not be treated as a rollover for purposes of the one rollover per 12-month period limitation or the restriction on rollovers for inherited IRAs under §408.

Finally, the notice provides two sample amendments that employers may use to give plan participants and beneficiaries whose RMDs are waived a choice of whether to receive the waived distribution, as well as 12 Q&As which provide further guidance regarding other issues related to the relief. Importantly, Q&A-3 modifies Notice 2007-7 by specifying that if an employee died in 2019, a non-spouse designated beneficiary has until the end of 2021 (rather than 2020) to make a direct rollover and use the life expectancy rule.

With these changes to RMDs for 2020, an opportunity exists to either skip the RMD or repay the distribution already taken by the deadline in order to reduce taxes. Also, equity values are still slightly negative year-to-date in 2020, so by not taking a distribution you can avoid selling when values are decreased. However, this decision should be reviewed with your trusted advisor taking into consideration your cash needs and alternative sources of funds.

The Senate through the Coronavirus Aid, Relief and Economic Security Act (“The CARES Act”) has brought with it several economic relief provisions as well as expansions and modifications to several areas of the tax code in an attempt to provide relief to taxpayers during the COVID-19 pandemic.

Among the provisions included in the CARES Act is a modification of the excess business loss (“EBL”) limitation imposed under Internal Revenue Code (“IRC”) §461(l). The Tax Cuts and Jobs Act of 2017 (“TCJA“) created §461(l) which disallows the deduction of EBL’s by non-corporate taxpayers (e.g. individuals, trusts, and estates) starting in the 2018 tax year. The modification under the CARES Act retroactively eliminated the loss limitation for the 2018 and 2019 tax years and suspends the limitation until tax years beginning after December 31, 2020. This allows taxpayers to fully deduct business losses without taking into consideration the limitations imposed under §461(l).

Under TCJA, EBL’s are calculated by looking at the aggregate trade or business deductions compared to the aggregate trade or business gross income/gain. The aggregate of these deductions is taken over the sum of the aggregate gross income attributable to the trade or business and limited to an allowable loss of $250,000 for single filers or $500,000 for married filers that file a joint return. Any excess loss would be carried over as a net operating loss (“NOL”). This change provides an opportunity for taxpayers to amend their 2018 and 2019 (if filed subject to the limitation) tax returns to benefit from the previously disallowed losses. If the 2019 tax return has not yet been filed, the EBL limitations will no longer apply.

Through the CARES Act the current NOL rules from TCJA have been amended for the 2018-2020 tax years, allowing losses that arose in those years to be carried back five years. Additionally, there has been a suspension of the provision which limits NOL’s to only 80% of a taxpayer’s taxable income through tax years ending before 12/31/2020. This may permit taxpayers to fully offset taxable income by carrybacks or carryforwards. These changes together may provide opportunities for taxpayers to receive a refund of income taxes that have been paid in those prior years and receive an influx of cash to help mitigate the losses incurred by the pandemic interruptions.

Along with these opportunities, the CARES Act also includes a technical correction to the TCJA provisions of the EBL. Under the CARES Act, any excess business loss shall be “determined without regard to any deductions, gross income, or gains attributable to any trade or business of performing services as an employee.” This disallows W-2 wages from being included as business income for purposes of an EBL calculation when the limitation returns in the 2021 tax year. Previously, the tax forms used to calculate the EBL limitation drafted by the IRS allowed W-2 income to be included in business income. Additionally, the CARES Act noted that capital gains are included in the computation of EBL only up to the lesser of gains and losses attributable to a trade or business, or the net capital gain income of the taxpayer. The CARES Act also provided technical corrections to the language of §461(l) clarifying that EBL’s are calculated without including §172 or §199A deductions, and net capital losses are not included in the EBL calculations.

Taxpayers should also be mindful of their state tax implications/liabilities arising from these changes. There are several types of IRC conformity laws that a state may have adopted, for instance static conformity states conform to the updated IRC provisions from a set date, which may not include these changes under the CARES Act. States that have rolling conformity will conform to the current IRC that applies federally, and there are some states which have selective conformity which only adopt specific provisions of the IRC.

As taxpayers are looking to file their 2019 returns, these updates should be taken into consideration and changes to their 2018 returns may be beneficial. Please reach out to your HBK Tax Advisor to discuss how these changes may impact you.

By now you most likely have heard about the Economic Impact Payments that were introduced with the CARES Act. It is an advanced payment of a 2020 tax credit of $1,200 for single filers or $2,400 for couples filing joint returns. Eligibility depends on AGI limitations which are applied by looking at a taxpayer’s 2018 or 2019 tax return. Please see our resource guide of the CARES Act and the Economic Impact Payments for more in depth information.

Non-Filing Tool
The IRS has released a tool on its website to help individuals who are not required to file an income tax return get their Economic Impact Payments. More information about this tool and who should use it can be found in our article IRS Launches a New Tool to Help Non-Filers Register for Economic Impact Payments.

Check Your Status
The IRS has also released a tool that can help individuals track their Economic Impact Payment status and allows them to enter additional information, if required. The tool can be found in the coronavirus section of the IRS website.

Economic Payment Issues
The Economic Impact Payments were released mid-April; however, many individuals have been reporting issues and have not yet received their payments. Some of the more common issues that individuals have been having regarding their Economic Impact Payments are as follows:

• Information has changed – If some information related to your tax return has changed since you last filed a tax return, such as moving or having new dependents, you may not have received your payment. A simple fix for this is to file your 2019 tax return if you have not done so already with your new information.
• Direct deposit was not set up with the IRS – Some taxpayers may not have had their bank account information included on their tax return and won’t be able to receive their payments via direct deposit. The “Get My Payment” tool can be used to enter your bank account information so you can have your payment sent via direct deposit. The IRS will also be sending out physical checks to anyone else who does not have their bank account information set up in the upcoming months.
• “Payment status not available” on the Get My Payment tool – Many users have reported seeing a message that reads “payment status not available” when checking their status using the Get My Payment tool. This can be a result of a few different reasons, the most common being that you don’t qualify for the payment or that the IRS is processing your information. The links provided above can help determine eligibility for the Economic Impact Payment and track your status. If you have recently filed your 2018 or 2019 tax return, the IRS may still be processing the return and won’t issue your payment until that process is complete. The Get My Payment tool gets updated overnight so there is no need to check your payment status more than once a day.
• Locked out of Get My Payment – As a security precaution, if the IRS is unable to verify your identity, you may be locked out of the system. These lockouts will generally just last one day, so you can try again the following day.
• Didn’t receive additional payments for children – There have been many reports of taxpayers not receiving the additional $500 payment for qualifying children. The IRS has been made aware of this issue and has stated that they are looking into it. This has not affected all taxpayers as others have reported receiving the additional $500 per child.
• Bank account is overdrawn – Banks do have the legal authority to withhold funds from accounts that have been overdrawn and present a negative balance. The CARES Act does not have a provision that makes an exception for the Economic Impact Payments. Some banks have decided to not seize any amounts related to the Economic Impact Payments.
• Married to a non-resident and file a joint tax return – For couples that file a joint tax return, both individuals must have a valid SSN to receive their payment, unless either partner is a member of the U.S. military during the tax year. It is still expected that the couple will qualify for the full credit when they file their 2020 tax return however, they will not receive an advanced payment.
• Resident of Puerto Rico – Due to special rules that are applicable to U.S. territories, direct deposits will not be released to residents of Puerto Rico until the U.S. Treasury has approved Puerto Rico’s distribution plan.

The IRS has a frequently asked questions page. The information on this page is being updated regularly, so the IRS is encouraging taxpayers to check back often. If you have any questions regarding the Economic Impact Payment, please consult your HBK tax advisor, we are standing by and ready to help.

President Trump has signed into law the historic $2 trillion stimulus package named the Coronavirus Aid, Relief and Economic Security (CARES) Act. The Act aims to aid the American public and economy as we fight the devastating spread of COVID-19. The legislation is the largest emergency aid package in U.S. history and will provide immediate cash to most U.S. employers and citizens. Please see read our previous article discussing the Act’s tax and financial provisions. We will be publishing comprehensive articles on these provisions in the upcoming weeks.