On Wednesday August 24th, the Internal Revenue Service issued Notice 2022-36, providing penalty relief for businesses and individuals that late filed certain returns for the 2019 and 2020 tax years. Based on IRS reports this will provide more than $1.2 billion in refunds to nearly 1.6 million taxpayers. In addition to providing much needed relief for taxpayers, this forgiveness will also allow the IRS to convert their resources to processing the backlog of tax returns and correspondence to achieve their goal of returning to normal operations for the 2023 filing season.

What penalties will be forgiven

The IRS is granting penalty forgiveness on failure to file penalties on certain tax return types. This penalty is assessed at a rate of 5% per month with a maximum rate of 25% of the unpaid tax when the tax return is filed. The penalty forgiveness will apply to:

• Individuals filing most of the 1040 series returns
• Trust filing most of the 1041 series returns
• Partnerships filing Form 1065
• S corporations filing Form 1120-S
• Corporations filing most of the 1120 series returns
• Real Estate Mortgage Investment Conduit (REMIC) Form 1066
• Non-profit entities filing a 990-T or 990-PF return.

In addition to tax returns, most informational returns will also qualify for penalty forgiveness, including most 1099 series reports. For taxpayers with foreign reporting, the Notice provides a detailed list of foreign returns and international information returns that qualify for forgiveness.

The penalty forgiveness will not be granted for any other penalties including, but not limited to, failure to pay penalties or underpayment penalties assessed in addition to the failure to file penalty. For taxpayers who were assessed a failure to file penalty for fraudulent reasons, penalty forgiveness will not be granted. The penalty forgiveness also does not apply to any penalties in an accepted offer in compromise, or penalties settled in a closing agreement in a judicial proceeding.

How to receive penalty forgiveness

As long as any qualifying outstanding return is filed by September 30, 2022, the IRS will automatically determine which taxpayers are eligible. For federal informational returns, the due date is August 1st of the respective year. For returns currently being filed, no penalties will be assessed. For penalties that have been assessed, the IRS will abate the penalties and issue a notice to show the current account balance. For penalties that have already been paid, the IRS will issue a refund directly to the taxpayer via check. The IRS anticipates all qualified penalties will be forgiven and refunded by the end of September.

Reach out to your HBK Tax Advisor if you have any questions.

As the pandemic has continued to unfold, so has legislation and guidance on the numerous COVID-19 relief options available. Today, as businesses and nonprofit organizations focus on pandemic recovery and other challenges, the requirements of these relief programs may no longer be at the forefront of leaders’ minds. However, these requirements are equally as important as when these organizations received their relief. The following summarizes the major federal COVID-19 relief options offered and their status as of November 15, 2021. Paid Leave Under the Families First Coronavirus Response Act (FFCRA) Status: Expired September 30, 2021 From April through December 2020, certain employers were required to provide employees with paid sick leave or expanded family leave for certain COVID-19 related absences. To receive reimbursement for the required time, employers could receive a dollar-for-dollar payroll tax credit for qualified wages (including certain contributions to health insurance), which was filed on Form 941 (or Form 941-X). Through two pieces of legislation (the Consolidated Appropriations Act and American Rescue Plan Act), the same tax credits were extended until September 30, 2021, although paid leave from January 1, 2021 through September 30, 2021 was not mandated. Employers who have not reflected this pay and claimed their associated credit on their Form 941 may still choose to do so via an amended Form 941-X. For additional information, including qualifications for leave, visit the US Department of Treasury. Economic Injury Disaster Loan for COVID-19 Disaster (EIDL) Status: Available until the Sooner of December 31, 2021 or the Depletion of Funding The EIDL is available to small businesses and nonprofit organizations located in the United States and its territories, all of which have been considered a disaster area due to COVID-19. This program is a loan of up to $2 million that must be repaid directly to the SBA during a 30 year term. For-profit businesses have a 3.75% fixed interest rate while private nonprofit organizations have a 2.75% interest rate. The low-interest, long-term loan is intended to help eligible organizations overcome the disaster (or pandemic) by providing working capital to meet operating expenses. In September, SBA updated the loan program as follows:

• Borrowers can obtain the full $2 million offered by the traditional EIDL program, rather than just $500,000 used for the COVID-19 related loan (presumably due to high demand).
• Payment and pre-payment of business non-federal debt was added as an eligible use of funds.
• The deferral period was extended to 24 months from the loan origination date for all loans.
• Affiliation requirements were simplified to businesses that owners control or in which they have 50% or more ownership.
• Certain size standards for select NAICS codes were edited to increase eligibility.

While loans are still available, the Infrastructure Investment and Jobs Act, signed into law on November 15, rescinds $13.5 billion of funding from this program. In addition, the law rescinds over $17.5 billion from the Targeted EIDL Advance program, a grant program related to the EIDL for certain borrowers who were hit hardest by the pandemic. As a result, potential borrowers are encouraged to apply for loans or related increases to their loans as soon as possible as funding may not be available when the program expires on December 31, 2021. Paycheck Protection Program (PPP) Status: Lenders and SBA Accepting Applications for Forgiveness Borrowers with first draw PPP Loans likely have applied for forgiveness on those loans or have begun making payments. If a borrower has an outstanding first draw PPP loan, has not applied for forgiveness, and is eligible for forgiveness, it is not too late! Borrowers can apply for forgiveness on their loan balance at any time until the maturity date. Now, borrowers with second draw loans are likely considering how to obtain forgiveness. These borrowers are encouraged to review the SBA forgiveness applications and note key changes, including how to test potential reduction safe harbors and how to test for a wage reduction, given that the reference period has changed. Borrowers should also consider the documentation that they should maintain or submit, which may include resubmitting proof of their gross receipts decline that they used to prove their eligibility for their loan. Borrowers will once again use their lender’s PPP forgiveness portal to apply for loan forgiveness. With ten months from the end of the covered period to apply, Borrowers should not rush, but unlike the first draw, patience for more guidance is not likely needed. All anticipated guidance has been released and is available from the SBA and US Department of the Treasury. Employee Retention Credit (ERC) Status: Program Ended for Most, Filings Still Accepted The Infrastructure Investment and Jobs Act includes the retroactive termination of the ERC, meaning that qualified wages paid after October 1, 2021, are not eligible for the tax credit. However, this change is not applicable for Recovery Startup Businesses, who can continue to take the ERC on qualified wages paid through December 31, 2021. A Recovery Startup Business is defined as a business that began after February 15, 2020, earns average gross receipts of less than $1 million, and does not qualify for the ERC under the original test (which is only applicable through the third quarter of 2021). These businesses are limited to a $50,000 credit for each of the third and fourth calendar quarters of 2021. Eligible businesses who have not filed for the ERC can still do so by amending their Form 941 filings via a Form 941X for each quarter where they have paid qualified wages. As the ERC does affect income tax, it is recommended calendar year businesses calculate their ERC and file Form 941-X before the end of the calendar year. For more information about the program, visit the IRS website. Employer Payroll Tax Deferral Status: 50% Payment Coming Due 12/31/2021 From March 27, 2020 to December 31, 2020 employers had the option to defer the deposit and payment of the employer’s share of Social Security taxes and certain railroad retirement taxes. Half, or 50% of the deferred deposit, must then be deposited by December 31, 2021, and the remaining amount must be deposited by December 31, 2022 to be treated as a timely deposit. As the first deadline is quickly approaching, employers who deferred their payroll tax should ensure that they are ready to make their payment before December 31 approaches. Organizations that use a payroll processor are encouraged to contact their processor in advance to avoid any complications. For more information, visit the IRS website. Restaurant Revitalization Fund Status: Funding Depleted, Reporting due 12/31/2021 The Restaurant Revitalization Fund offered certain restaurants, bars, breweries, wineries, and similar businesses with a grant opportunity equal to revenue lost due to the COVID-19 pandemic. Many businesses that were eligible for the grants missed the opportunity due to a limited amount of funding that was quickly depleted. Those who received funds must report how much of their grant has been used against each expense category by December 31, 2021 using the Restaurant Revitalization Fund portal. Businesses unsure of eligible uses of funds can consult the Restaurant Revitalization Program Guide provided by the SBA. Shuttered Venue Operators Grant Status: Funding Depleted Live venue operators, theatrical producers, museum operators, talent representatives and other similar businesses may have applied for the Shuttered Venue Operators Grant, a grant program focused on the hard-hit entertainment industry. Depending on the award amount, businesses may be subject to certain reporting, monitoring, or auditing requirements. As a result, grant recipients should be aware of their individual requirements and ensure they fulfill them. In addition, recipients should ensure that they watch for communications from SBA, which may indicate the need for additional reporting. Grant recipients can also learn more by visiting the SBA Shuttered Venue Operators Grant relief page. Other Considerations Throughout the pandemic, many programs – at the federal, state, and local levels – became available to help businesses navigate the pandemic. Whether your business received funding from one of the listed programs or funding from any other source, consider refreshing yourself on program requirements. Many programs were implemented quickly and later evolved. Recipients must keep up to date with changing guidance and ensure they meet all requirements to obtain or retain such funding. In addition, as you spend funds, consider keeping detailed records of how each program is used. Each funding program has its own requirements, including how funds are spent. However, most prohibit a borrower or fund recipient from “double-dipping”. This means the same expense cannot be reimbursed by funds from two different COVID-19 relief programs. By reviewing program requirements and documenting the use of funds, organizations are prepared to show that their use of funds meets program requirements. For assistance with your COVID-19 relief, please contact your HBK Advisor.

The year 2020 might be behind us, but the pandemic rages on, as does the flurry of legislation aimed at providing relief for affected businesses, including and sometimes specifically for physician practices. As we embark on what hopefully proves a year characterized by a return to some degree of operations normalcy, consider these five keys to your 2021 financial performance:

1. Strong financial position. Through a combination of government relief funds and austerity measures, physician practices generally were able to survive 2020, rebounding in terms of patient counts and strengthening their balance sheets as the year came to an end. Now, maintaining a strong financial position will be key to having the flexibility to keep your practice on solid footing for the long-term. That will include staying abreast of any reimbursement changes, any new government relief programs, and prudent provider cash flow management.


2. Revenue cycle management. At the beginning of December 2020, the Centers for Medicare and Medicaid Services (CMS) cut the CY 2021 PFS conversion factor by over 10 percent and provided significant changes in reimbursements to E&M visit codes and telemedicine services, to name a couple. Then with the passage of the Consolidated Appropriations Act (CAA) on December 27, the conversion factor was increased 3.75 percent, sequestration was suspended through March 31, 2021, the Geographic Practice Cost Index floor was reinstated through CY 2023, and implementation of the complex add-on E&M service code was delayed until CY 2024. Given the flutter of substantial changes in such a short period of time, now may be a good time to conduct a full coding review of your practice. Such a review is a good starting point for heightening your attention to detail with emphasis on your RCM operations and ensuring your coding, billing, and collection processes result in efficient and maximum reimbursement.


3. PPP: rounds one and two. Practices that received the Paycheck Protection Program (PPP) loans in 2020 and have not yet applied for loan forgiveness should work with their financial institutions to do so as soon as possible. Filing should be less cumbersome now as the thresholds for qualifying for the simplified forgiveness process have been raised to loans of up to $150,000. Most notably with the passage of the CAA, expenses incurred on forgiven amounts are now tax-deductible—with no basis consequences to shareholders or partners.
   
   To qualify for a second round Payment Protection Program loan, you have to have received and used—or will use—the funds from a first-round loan. As well, the business must have no more than 300 employees, down from 500 for the first round, and have gross receipts in any 2020 quarter of at least 25 percent less than the corresponding 2019 quarter. We still await potential further guidance on how funds received from other programs, like the Health and Human Services Provider Relief Fund, will affect your ability to qualify for a second PPP loan, but we are advising practices that may have suffered a 25 percent decrease in receipts in a 2020 quarter to reach out to your professional advisor for guidance.


4. Reporting requirements around HHS Provider Relief Funds. During 2020, most providers received an HHS Provider Relief Fund (PRF) payment through one or more of the agency’s General Distribution phases. Now, practices are required to submit a report on how those funds were used. Practices will need to substantiate how the PRF they received covered increased expenditures attributable to the coronavirus and related lost revenues during 2020. If a practice received a payment, or combined payments, in excess of $10,000, the practice must submit the initial report covering the 2020 year through the HHS portal between January 15 and February 15, 2021. Note that the funds are considered taxable income. Providers receiving the funds will be issued 1099-MISC for 2020, and a single audit will be required for providers who received more than $750,000.


5. Professional relationships. Practice leaders and administrators relied heavily on their professional advisors in 2020. You will continue to need the counsel of your financial advisors, lawyers, bankers, and others as we make our way through 2021. It is especially important that practices form and secure their relationships with advisors who have deep expertise in serving physician practices and who work with multiple practices and practice specialties and understand the complex needs of each..

We invite you to call us with your questions and concerns at 239-482-5522. Or email us at mdeluca@hbkcpa.com or jzarlenga@hbkcpa.com. HBK Healthcare Solutions is a dedicated team of healthcare provider subject matter experts within HBK CPAs & Consultants. Among more than 800 clients in the healthcare and social assistance businesses, we serve more than 300 private physician and dental practices. Our unique depth and breadth of experience in medical verticals manifests itself in a full complement of compliance and consulting services, a holistic financial solution.