With Covid-19 relief measures expiring across the board, taxpayers should be aware that the limitation on “excess business losses” (EBLs) is now in effect. This limitation is expected to impact many taxpayers and hinder their ability to offset taxable income with business losses. The EBL limitation was originally enacted by the TCJA and scheduled to apply to tax years 2018 through 2025. However, the CARES Act retroactively postponed the limitation until 2021, and the ARPA extended the limitation through 2026.

The limitation disallows any EBL of a non-corporate taxpayer. For 2021, EBLs are trade or business losses that exceed trade or business income (without regard to any deduction for Qualified Business Income or Net Operating Losses) by more than $524,000 for married individuals filing jointly or $262,000 for other taxpayers. In the case of a partnership or S corporation, the EBL limitation applies at the partner or shareholder level. Each partner’s or shareholder’s allocable share of trade or business income or loss is taken into account in applying the EBL limitation to such partner or shareholder.

Disallowed EBLs are treated as Net Operating Loss carryovers to the following tax year. Accordingly, the carryforward amount will not factor into the following year’s EBL limitation and the disallowance generally operates as a one-year deferral. (Note, however, that various versions of the Build Back Better Act have contained provisions under which the EBL would retain its character as a trade or business loss and be subject to annual testing under the limitation – potentially postponing deduction of the EBL over multiple years).

Some things to note:

• The EBL limitation applies after the application of (1) the passive activity loss limitation and (2) the at-risk loss limitation. Thus, if a loss is disallowed under either limitation, the loss will not be taken into account in applying the EBL limitation.
• Employee wages aren’t taken into account in computing the EBL, so EBLs cannot shelter employment income. It is unclear whether guaranteed payments from a partnership are taken into account in computing the EBL.
• When calculating the EBL limitation, taxpayers take into account the lesser of: (1) capital gain net income attributable to a trade or business, or (2) capital gain net income. Capital losses are not taken into account.
• It is unclear whether gain or loss from the disposition of an interest in a partnership or S corporation conducting an active trade or business would be taken into account in computing the EBL. We will advise as future guidance becomes available.

If you have any questions or believe that this limitation may impact you, please reach out to an HBK Tax Adviser.

Among its COVID-19 relief provisions, the Consolidated Appropriations Act of 2021 (“CAA”) allows taxpayers affected by a qualifying disaster to take distributions of up to $100,000 from their qualified retirement plans. Under the provision, they can pay the tax over a three-year period and are exempted from the usual 10 percent penalty on early distributions.

Under the CAA, a qualified disaster is defined as:

• a presidentially declared disaster between December 28, 2019 and December 31, 2020; or
• a qualified disaster area per the Stafford Act that has been declared by the President between January 1,2020 and February 19, 2021; or
• the same as “major disaster” per the Stafford Act and within the timeframe of December 28, 2019 through December 31, 2020.

Qualified disasters are monitored and made public by FEMA, and listed on their disaster declarations page.

Under the CAA, disaster relief is available only in connection with recent natural disasters other than those solely related to COVID-19. The COVID-19 provisions of the CCA provide temporary relief from the partial plan termination rules under section 411(d)(3) of the Internal Revenue Code of 1986, as amended, for employee turnover due to the COVID-19 pandemic period.

In the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress modified its qualified disaster distribution rules by removing the 10 percent tax for early withdrawals for coronavirus-related distributions of up to $100,000. To qualify the distribution must be from an IRA or eligible defined contribution plan, including 401(k), 403(b), and 457(b) plans, and made between January 1 and December 31, 2020.

In addition, the distribution must be made to an individual:

• who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (Covid-19) by a test approved by the Centers for Disease Control and Prevention, or
• whose spouse or dependent is diagnosed with such virus or disease by such a test, or
• who experiences adverse financial consequences as a result the coronavirus.

Adverse financial consequences can include consequences resulting from an individual, individual’s spouse, or household member (defined as someone who shares the individual’s principal residence):

• being quarantined,
• being furloughed or laid off or having work hours reduced due to such virus or disease,
• being unable to work due to lack of child care due to such virus or disease,
• whose owned or operated business was closed or had operating hours reduced due to such virus or disease,
• incurring a reduction in pay or self-employment income,
• having a job offer rescinded or start date for a job delayed, or
• other factors as determined by the Secretary of the Treasury.

If you have taken advantage of the CARES Act or CAA provisions for retirement plan distributions and have questions on how this may impact your taxes please reach out to your HBK Tax Advisor or HBKS Wealth Advisor.

The Consolidated Appropriations Act, 2021 includes several changes to the CARES Act’s Paycheck Protection Program (PPP) loan forgiveness process. The changes are reflected in new forgiveness applications issued January 19 by the Small Business Administration (SBA). The two applications can be found at: Standard Application: https://home.treasury.gov/system/files/136/PPP–Loan-Forgiveness-Application-and-Instructions–Form-3508-1192021.pdf EZ Application: https://home.treasury.gov/system/files/136/PPP–Loan-Forgiveness-Application-Instructions–Form3508EZ-1192021.pdf Criteria for using the standard application versus the EZ application remain the same. Key changes to the applications include:

• Checkboxes were added to select whether the forgiveness application is for the first draw or second draw loan.
• The Economic Industry Disaster Loan (EIDL) Advance Amount and EIDL Application Number fields were removed. Per the Act, the EIDL Advance no longer reduces the amount of PPP forgiveness.
• Lines were added to report new nonpayroll costs: covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.

On the standard application, the safe harbors for the FTE Reduction (Safe Harbor #2, Step 4), and Salary/Hour Wage Reduction (Step 2c) were updated so that borrowers who received a loan before December 27, 2020 (the date the Consolidated Appropriations Act was passed) have until December 31, 2020, to eliminate any reduction to their forgiveness amount, while those receiving a loan after December 27, 2020, have until the last day of their covered period to take this action. In addition, an updated 3508S application was released for borrowers who received loans of $150,000 or less: https://home.treasury.gov/system/files/136/PPP–Loan-Forgiveness-Application-Instructions–Form-3508S-1192021.pdf. Borrowers using the form are required to make two certifications: 1) confirm that they complied with the rules regarding the use of the funds, the proportion of funds used for payroll costs, and their calculations regarding forgiveness, and 2) that the information they are providing in the application is “true and correct.” Borrowers who received a PPP loan between $50,000 and $150,000 and borrowers of a loan of $50,000 or less who received, together with their affiliates, loans of $2 million or more are required to complete FTE and Salary/Wage Reduction tests that may reduce forgiveness. While the borrower is not required to submit this documentation, they are required to maintain it in order to provide it to the SBA upon request. Other Guidance

• An Interim Final Rule (IFR) on PPP Loan Forgiveness was issued in conjunction with these applications. The rule combines a number of previous IFRs and explains changes associated with the Consolidated Appropriations Act, 2021 and new forgiveness applications. A copy of the IFR can be found at https://home.treasury.gov/system/files/136/PPP–IFR–Loan-Forgiveness-Requirements-Loan-Review-Procedures-Amended-Economic-Aid-Act-1192021.pdf
• Borrowers of first draw PPP loans who received those loans before December 27, 2020, are also required to disclose if the U.S. President, Vice President, head of an Executive department as defined in 5 USC 101, or a member of Congress, or the spouse of any of these individuals directly or indirectly held a controlling interest in the borrowing entity at the time the PPP application was submitted to the lender. The SBA released a Disclosure of Certain Controlling Interest Form (Form 3508D) which can be found at https://home.treasury.gov/system/files/136/PPP–Borrowers-Disclosure-Certain-Controlling-Interests-1192021.pdf. Disclosures must be made by January 26, 2021.

For questions regarding your PPP loan and related forgiveness, contact your HBK Advisor.

Taking a deduction for charitable contributions on your personal income tax return has become easier for the 2020 tax year.

As a result of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by Congress to address the ongoing coronavirus pandemic, there are two changes in the treatment of charitable giving that will result in tax benefits for the upcoming 2020 filing season. First, the CARES Act allows taxpayers to take an above-the-line deduction for cash contributions made to qualifying charitable organizations. This above-the-line deduction is limited to $300 for single filers. While the CARES Act does not specifically address the limit for taxpayers who are married filing jointly, the assumption is that the limit for joint filers is $600.

Second, for taxpayers who itemize their deductions, the CARES Acts temporarily removes the cap for cash contributions made to qualified charities previously limited to 60% of a taxpayer’s adjusted gross income (AGI), and allows these taxpayers to deduct contribution amounts up to 100% of their AGI. It is important to note that the CARES Act only provides these tax benefits for donations made to 501(c)(3) public charities. Donations to other types of not-for-profit organizations are still limited according to the tax provisions in the 2017 Tax Cuts and Jobs Act (TCJA). While the new $300 above-the-line deduction is a permanent change, the elimination of the 60% AGI limitation for filers who itemize deductions only applies for the 2020 tax year. Beginning January 1, 2021, the charitable deduction AGI limitation will revert back to the 60% limitation, which was increased from 50% by the TCJA.

The TCJA inadvertently decreased the incentive to make charitable contributions when it increased the standard deduction, thus eliminating a tax benefit for many small charitable donations. The provisions of the CARES Act increasing the benefits of charitable giving was an attempt by Congress to address the decrease in charitable giving and provide charitable organizations with additional support to help offset the economic effects the Coronavirus pandemic has had on the not-for-profit industry.

For those that wish to take advantage of the temporary charitable deduction limitations provided by the CARES Act, qualifying donations must be made by December 31, 2020. For additional information or questions please contact your HBK tax advisor.

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 Small Business Administration announced on July 11 that its Economic Injury Disaster Loan (EIDL) emergency advance funds, allocated through the CARES Act, and subsequently, the Paycheck Protection Program and Health Care Enhancement Act, have run out. EIDL funds to small businesses of $1,000 per employee up to $10,000, also referred to as emergency grants, do not need to be repaid, though they reduce forgiveness for borrowers with Paycheck Protection Program loans.

While emergency advance or grant funds have been expended, Economic Injury Disaster Loans remain available to eligible organizations to support working capital needs generated by the COVID-19 crisis. Loan terms include an amortization period of up to 30 years, and a low interest rate of 3.75 percent for small businesses and 2.75 percent for non-profit organizations.

For more information on eligibility and loan terms, visit sba.gov/disaster.

If you have questions about an Economic Injury Disaster Loan, the related emergency advance or other COVID-19 relief options, please 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.

On Thursday, May 28^th, HBK and Gannon University SBDC presented the second installment of their “From Survive to Thrive” webinar series. In this session, Amy Dalen, JD, Chair of the HBK Tax Advisory Group, and Ben DiGirolamo, CPA, JD, provided a tax update for individuals and businesses. Below are some of the highlights from this session. Economic Impact Payments Amy provided an update on the Coronavirus Aid, Relief, and Economic Security (CARES) Act economic impact payments, indicating that a number of payments have been paid incorrectly to deceased individuals and individuals who have been incarcerated. The Internal Revenue Service (IRS) recently released Frequently Asked Questions (FAQs) providing information on how these payments can be repaid. While FAQs can provide us with valuable insight into the positions that the IRS is likely to take, if they are not otherwise published they should not be relied upon as authoritative. Amy pointed out that some of the FAQs provided by the IRS are more restrictive than the statutory language of the CARES Act. Retirement Planning Amy went through a summary of the CARES Act benefits provided for retirement plans, including a waiver of the 10% penalty for early withdrawals up to $100,000 for qualified individuals, and the increase to permissible loan amounts from $50,000 to $100,000. A qualified individual has either been diagnosed with coronavirus, had a spouse or dependent diagnosed with coronavirus, or been financially impacted by coronavirus. Qualified distributions can be recognized as income over a three year period, and can also be repaid to the plan during that time. The IRS is expected to issue additional guidance, and has indicated that the guidance provided will be similar to the guidance issued for distributions allowed in the wake of Hurricane Katrina. In the mean time, the IRS has provided FAQs. Charitable Contributions Amy pointed out that charities have been suffering from a decrease to charitable contributions in the wake of the Tax Cuts and Jobs Act (TCJA) of 2017, which increased the standard deduction and eliminated the charitable deduction benefit for many taxpayers. The CARES Act attempts to address this by making a permanent $300 charitable deduction for individuals that use the standard deduction, which will be an above-the-line deduction. Contributions must be in cash in order to qualify for this deduction. In addition, the CARES Act increased the adjusted gross income (AGI) limitation for cash contributions to certain 501(c)(3) organizations from 60% to 100% for tax year 2020, and increased the corporate charitable deduction limitation to 25%. Contributions in excess of these limits can be carried forward for up to five years. Excess Business Loss Limitation Amy explained that the TCJA created a new limitation for non-corporate taxpayers on business losses that exceed $250,000 for single filers and $500,000 for married filers that file a joint return. The CARES Act eliminates this limitation completely for farm losses, and suspends the limitation for non-corporate taxpayers for tax years 2018 through 2021. This provides an opportunity for taxpayers to amend their 2018 returns and use business losses that were limited. In addition, the CARES Act provided some technical corrections, clarifying that W-2 wages are not considered business income for purposes of the excess business loss calculation, and that capital gains included in the calculation are limited to a taxpayer’s net capital gain. Individual Planning Opportunities Amy pointed out that low interest rates and low market values are providing significant opportunities for taxpayers. Some of these opportunities include Roth IRA conversions, the use of Grantor Retained Annuity Trusts (GRATs) and other estate “freeze” techniques, and the use of related party loans. For any related party loans currently in existence, taxpayers should consider revising them to take advantage of the low AFR rates. Deductibility of PPP Loan Expenses Ben began his presentation covering one negative provision that came out of the CARES Act: the inability of businesses to deduct expenses that are paid for by PPP loan proceeds that are later forgiven. The CARES Act provides that the loan forgiveness is not taxable income, and the IRS is taking the position that any expenses related to that loan forgiveness are not deductible. This leaves businesses in the same boat as if the forgiven amount were taxable and the expenses were deductible. Ben pointed out that Congress may change this position to make the expenses deductible even though the loan is forgiven. Employee Retention Tax Credit Ben covered the new employee retention credit that was put in place by the CARES Act, indicating that it may be taken if a business was fully or partially suspended during a quarter in 2020 due to a government order, or if gross receipts were less than half of those from the same quarter in 2019. Ben pointed out that businesses that have received a PPP loan are not entitled to the credit. The credit is against the employer’s 6.2% share of Social Security payroll taxes, and is equal to fifty (50) percent of a) wages up to $10,000 per employee paid to the employees unable to work because of COVID-19 if the business had more than 100 employees in 2019, and b) all wages up to $10,000 per employee for businesses with less than 100 employees. The employer is allowed to reduce their otherwise required payroll tax deposits by the credit amount, and can file and get a cash refund if the credit exceeds the deposit. Employer Payroll Tax Deferral Ben went over the payroll tax deferral, which allows employers to delay payment of their side of the Social Security tax for deposits made from March 27^th through the end of the 2020 calendar year. Fifty (50) percent of the deferred amount will be due at the end of 2021, and the other half will be due by December 31, 2022. Employers are allowed to delay payments until they receive notice from the SBA that any portion of their PPP loan is forgiven. This deferral also applies to fifty (50) percent of self-employment taxes. Net Operating Losses Ben explained that the net operating loss carryback period was extended, which makes a change to the prior elimination of the two-year carryback period by the TCJA. Taxpayers are now allowed a five-year carryback period for 2018, 2019, and 2020 tax years, and the 80 percent limitation that was imposed by the TCJA has also been eliminated for carryforwards. Business Interest Expense Limitations Ben explained that the TCJA provided for a thirty (30) percent adjusted taxable income limitation on the deductibility of interest expense for businesses with $26 million or more in average annual gross receipts. The CARES Act increased this limit to fifty (50) percent for tax years 2019 and 2020, though partnerships are only allowed the increase in 2020. Qualified Improvement Property Ben provided a quick overview of a technical error found in the TCJA which required qualified improvement property (QIP) to have a 39-year life and not qualify for bonus depreciation, which was not the intention of Congress. The CARES Act reduced the life to 15 years and provided that it is eligible for 100 percent bonus depreciation. QIP applies to anything internal, non-structural, and after initial construction. The technical correction is retroactive to 2018 and can be applied using amended returns or by filing an accounting method change. Accelerating Disaster Losses Ben provided an overview of a potential benefit to businesses. When there is a federally declared disaster, businesses may be able to deduct certain financial losses as casualty losses, and may be able to accelerate those losses to the tax year preceding the year of the loss. Since the current situation related to COVID-19 is a federally declared disaster, businesses may be able to accelerate deductions for abandoned leaseholds, capitalized costs from abandoned business deals, contract termination payments, and unrefunded prepaid expenses in to the 2019 tax year. Qualified Disaster Relief Payments Finally, Ben pointed out that employers are able to make tax-free payments to employees during a federally declared disaster in order to reimburse them for certain expenses. These payments are still deductible by the employer. Expenses that employers may be able to reimburse include medical expenses not covered by insurance, medicine and sanitizers, costs to work from home, and childcare. The exclusion does not apply for ordinary wage payments.

On April 17, USDA Secretary Sonny Perdue introduced the Coronavirus Food Assistance Program (CFAP), which uses funding from the CARES Act and other USDA authorities to provide $19 billion in relief funding. This program will support producers of agricultural commodities who have suffered due to COVID-19.

Eligible commodities include non-specialty crops (such as corn, soybeans, and durum wheat), wool, livestock (including cattle), dairy, and specialty crops (including some fruits, vegetables, and nuts). The program will also consider additional crops and is collecting information, particularly for commodities including nursery products, aquaculture products, and cut flowers.

USDA’s Farm Service Agency will begin accepting applications on May 26. Eligible producers must meet specific criteria, available at https://www.farmers.gov/cfap. Starting on May 26, potential applicants should contact their FSA county office to schedule a telephone appointment.

For additional information about the program, visit https://www.farmers.gov/cfap, which includes additional information and a webinar on the program. To discuss additional relief options that may be available for your business, contact your HBK advisor.

On May 15, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application with accompanying schedules and instructions. The release includes clarifications and new information on several key issues:

• Covered Period and Alternative Payroll Covered Period
  Question 20 of the SBA’s Frequently Asked Questions (FAQs) on the PPP defined the “covered period” as “the eight-week period beginning the day the lender makes the first disbursement of the PPP loan to the borrower.” However, the Forgiveness Application offers a second option. The eight-week Alternative Payroll Covered Period, available to those that have a biweekly or more frequent payroll schedule, begins the first day of the borrower’s first payroll period following the PPP loan disbursement date.
• Costs Incurred and Payments Made
  The CARES Act includes as expenses eligible for forgiveness “costs incurred and payments made during the covered period.” The vague language led to different interpretations of what expenses would or would not be eligible.

In its definition of “eligible payroll costs,” the Application states that “borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred” during the eight- week covered or alternative covered period. In addition, payroll costs that are incurred but not paid during the covered or alternative covered period are eligible for forgiveness if paid on or before the next regular payroll date.

Similarly, eligible non-payroll costs “must be paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.”

• Reductions to Forgiveness
  The Application provides detailed instructions on how to calculate full-time equivalent (FTE) reductions and salary and wage reductions. The CARES Act noted that reductions in either the FTE count or salaries and wages would reduce forgiveness but was not clear how the calculations would work. The Application not only offers some clarity, but provides accompanying schedules to help borrowers calculate the reductions.
• True and Correct
  Also, borrowers must certify that “the information provided in [their forgiveness application] and the information provided in all supporting documents and forms is true and correct in all material aspects.” Making a false statement to obtain forgiveness is punishable under the law with imprisonment and/or fines ranging up to $1 million. The Application states that “eligibility for loan forgiveness will be evaluated in accordance with the PPP regulations and guidance issued by the SBA through the date of [the forgiveness] application.”
• More Guidance to Come
  The loan application process evolved as Interim Rules and FAQs were issued. We expect the forgiveness process will also change with additional guidance. While borrowers may use the Application to begin preparing documentation and estimating forgiveness, they should understand that guidance could change, or that the SBA could provide additional clarification on forgiveness calculation and documentation.

Borrowers can download the Application from https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. For more information about PPP loan forgiveness, please contact your HBK advisor.