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.

On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA), also referred to as the Economic Aid Act or Omnibus Bill, was signed into law, providing new COVID 19 relief options for individuals and small businesses, including a second round of Paycheck Protection Program (PPP) loans and an extended and expanded Employee Retention Credit. Interested borrowers have been awaiting guidance, which the SBA and Department of the Treasury have begun to release. Join Amy Reynallt, MBA and Ben DiGirolamo, CPA, JD as they discuss the new guidance which includes:

• Interim Final Rules on the First and Second PPP Draws
• First Draw and Second Draw PPP Loan Applications
• Updates on the Employee Retention Credit

  Download the Materials.

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.

On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA), also referred to as the Economic Aid Act or Omnibus Bill, was signed into law, providing new COVID 19 relief options for individuals and small businesses, including a second round of Paycheck Protection Program (PPP) loans. Interested borrowers have been awaiting guidance, which the SBA and Department of the Treasury have begun to release.

New Guidance

Two Interim Final Rules (IFRs) were released on January 6. The first, titled “Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act,” combines guidance from several previous IFRs with new provisions in the CAA. A second IFR, “Interim Final Rule on Second Draw Loans,” provides guidance on eligibility and loan details for the new round of loans. Highlights of that second IFR include:

Eligibility criteria. In general, eligible entities must employ 300 or fewer employees, have received a First Draw PPP loan that they have used or will use to pay eligible expenses, and must have experienced a gross receipts reduction of 25 percent or greater in at least one 2020 quarter compared to the same quarter in 2019. Other eligibility criteria may also apply.

Defining gross receipts. For eligible nonprofits, veterans, nonprofit news, 501(c), or destination marketing organizations, gross receipts are defined in section 6033 of the Internal Revenue Code of 1986. For other entities, the IFR defines gross receipts per the SBA definition in 13 C.F.R. 121.104, and notes that it includes “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.” Exclusions include “taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.” Additionally, proceeds from forgiven PPP loans are excluded from the definition of gross receipts.

Determining the loan amount. Eligible borrowers may generally borrow up to two-and-a-half months of their average monthly payroll cost, up to $2 million. Businesses that are entities of a corporate group are limited in aggregate to $4 million of Second Draw Loans. Those with a NAICS code beginning with 72 (generally hospitality industry organizations) at the time of disbursement can calculate their loan amount by using three-and-a-half months of their average monthly payroll cost. Average payroll costs can be based on 2019, 2020, or for borrowers who are not self-employed, a sole proprietor, or an independent contractor, the precise one-year period before the date on which the loan is made.

Other loan details. Second Draw PPP loans will carry a 1 percent interest rate and five-year maturity, with no collateral or personal guarantees required. Loans will be available on a first-come, first-served basis and can be funded through the sooner of March 31, 2020, or when funding is depleted.

Applications

In addition to the new guidance, the SBA also released two new applications and instructions for new First Draw and Second Draw Loans.

For First Draw Loans, the application and instructions can be found at: https://home.treasury.gov/system/files/136/PPP Borrower Application Form.pdf.

For Second Draw Loans, the application and instructions can be found at: https://home.treasury.gov/system/files/136/PPP Second Draw Borrower Application Form.pdf.

As with previous PPP loan applications, many lenders will require borrowers to submit their applications through online portals. Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) are authorized to begin accepting applications the week of January 11 with larger banks to follow.

Take Action Now.

The PPP provisions in this legislation, as well as in other economic and tax relief provisions, are complex and must be used specifically. Interested parties should take immediate action to review their business and financing needs as some options are time-sensitive.

Many of the factors determining whether your business qualifies for these loans or should apply for the new round of PPP funding are organization-specific. There are also legal implications for applying and using PPP funds. We encourage interested parties to consult with their legal counsel regarding questions on eligibility under the terms of this latest round of legislation.

We recognize that the effects of the COVID-19 pandemic on businesses are ongoing and we remain committed to supporting you. If you would like assistance with evaluating your opportunity to participate in COVID-19 tax and/or economic relief measures, please contact your HBK Advisor.

Congressional leaders have agreed on a new stimulus package that includes a second round of Paycheck Protection Program loans for certain borrowers and tax relief for small and mid-size companies. President Trump has now signed the bill into law. HBK’s Ben DiGirolamo, CPA, JD, and Amy Reynallt, MBA, discuss the details, help you determine which provisions affect you and your business, and what steps you should take next to benefit from the new stimulus. Discussion topics include:

• Who is eligible for a second draw PPP loan
• Changes to the original PPP forgiveness process that may affect your forgiveness application
• The reversal to the IRS’s notices on tax deductibility of expenses paid for with the PPP loans
• Updates on the Economic Injury Disaster Loan program
• Support for more types of businesses including tax breaks and changes you should know
• Stimulus payments to individuals and extended unemployment benefits

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On Sunday evening, President Trump signed the Consolidated Appropriations Act, 2021, which includes COVID-19 relief through its Additional Coronavirus Response and Relief section, into law. Despite initial criticism from the President last week, Congress made none of the changes previously requested by the President. Key provisions within the COVID-19 portion of the law include:

• Stimulus checks for eligible individuals
• The extension of certain unemployment benefits
• An extended and expanded Employee Retention Credit
• Changes to existing Paycheck Protection Program (PPP) loans, including clarification that expenses paid with forgiven PPP loan funds will now be deductible for federal income tax purposes
• A second draw PPP loan for eligible businesses
• The extension of several tax credits and deductions

  For a summary of the law’s major COIVD-19 provisions, visit Agreement Reached! New Stimulus Package Expected to be Passed into Law. Over the coming days and weeks, it is expected that additional guidance will be issued from agencies including the Small Business Administration (SBA), Department of the Treasury, Department of Labor (DOL), Internal Revenue Service (IRS), and others that may facilitate these COVID-19 relief programs. Individuals and businesses interested in these relief options are encouraged to watch for this guidance as well as communications that may indicate when such programs are made available. For questions regarding this law or your COVID-19 relief options, please contact your HBK Advisor.

Nine months after passing the CARES Act, Congressional leaders have reached an agreement on the next round of COVID-19 relief. This package, which is part of the omnibus bill, offers support to individuals and businesses through a variety of programs. The bill was passed last night by both the House and Senate and is expected to be signed by President Trump before the end of the week. Key provisions of this stimulus package include but are not limited to the following:

• Direct stimulus paymentsDirect stimulus payments up to $600 per individual, $1,200 for a married couple filing jointly, and $600 for qualifying children under the age of 17. The payments will be subject to a phaseout for single taxpayers with 2019 adjusted gross income (AGI) in excess of $75,000, and married filings with AGI exceeding $150,000. Like with the stimulus payments issued earlier this year, these payments represent an advance in taxpayers’ credits, although those who receive a stimulus payment that is larger than the credit will not be required to pay back stimulus funds that exceed the credit amount.
• Extended unemployment benefitsBenefits for the unemployed will be extended for 11 weeks to March 14, 2021, with $300 weekly offered by the federal government after December 26, 2020. The Pandemic Unemployment Assistance (PUA) program, which offers unemployment benefits to those often ineligible for unemployment such as those that are self-employed or do not have sufficient work history to qualify for regular unemployment compensation, will also be extended.
• Employee payroll tax deferralCongress extended the employee payroll tax deferral allowed under President Trump’s executive action on wages paid from September 1 through December 31, 2020 to April 30, 2021. In addition, the bill extends the due date for payment of those deferred taxes to December 31, 2021.
• Clarification of tax treatment of forgiveness of covered loansPPP loan forgiveness, Economic Injury Disaster Loan (EIDL) advances, and other loan payment subsidies will not be includable in taxable income. In addition, expenses paid with these loans, grants, or subsidies will now be deductible for federal income tax purposes.
• Extension of FFCRA Paid Sick Leave and Expanded Family Medical LeaveThe FFCRA programs required certain employers to pay sick or expanded family medical leave related to certain COVID-19 circumstances, and in return, the employer could receive a fully refundable payroll tax credit equal to those wages and qualified health insurance payments. While the program was set to expire at the end of the year, the bill extends the tax credits through March 31, 2021.
• Extended and Expanded Employee Retention Tax CreditThe Employee Retention Tax Credit (ERC) was extended through July 1, 2021, and its benefits were increased for 2021. The credit amount increased from 50% to 70%, with the employee wage limitation of $10,000 per employee now applying by quarter. To be eligible, businesses must have suffered at least a 20% (down from 50% in the CARES Act) reduction in gross receipts in the calendar quarter, as compared to the same calendar quarter in 2019. One of the most significant changes is that businesses with a PPP loan may now benefit from the ERC, however, wages included in the ERC are not forgivable PPP loan expenses
• Full Deduction for Business MealsBusiness expenses for food or beverages provided by a restaurant and paid or incurred after December 31, 2020 and before January 1, 2023 are 100% deductible.
• Changes to the PPP programWith $35 billion earmarked for new borrowers, including certain 501(c) organizations who were previously ineligible, Congress made further changes to the Paycheck Protection Program (PPP). Borrowers who have not yet applied for forgiveness will find that additional non-payroll costs and the ability to select a covered period between 8 and 24 weeks are two added features of the PPP program. Borrowers with loans under $150,000 will also have a simplified application process. Further, businesses who obtained both a PPP loan and an EIDL advance will no longer see their PPP forgiveness reduced by the amount of their EIDL advance.
• Additional PPP loansA “second draw” loan will be available to certain small businesses that have been heavily affected by the COVID-19 pandemic. Generally, these businesses must have used or will use the full amount of their PPP loan, have less than 300 employees, and have experienced declines in gross receipts of 25% in any 2020 calendar quarter, as compared to the same quarter in 2019. Interested businesses should be aware that this eligibility criterion is different than in the original round of PPP funding, meaning that borrowers should carefully consider their eligibility. Eligible borrowers may apply for and receive loans up to $2 million, based on 2.5 months of average monthly payroll costs, except for certain hospitality industry businesses, who may receive loans equal to the lesser of $2 million or 3.5 months of average monthly payroll costs.
• Grants for Shuttered Venue OperatorsCertain live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, and talent representatives that meet certain requirements including a 25% reduction in revenue in a calendar quarter in 2020 as compared to the same quarter in 2019 may be eligible for grants. These grants are intended to be used for the payment of payroll costs, limited independent contractor payments, rent, utilities, mortgage interest, debt interest, certain worker protection expenses, and other maintenance, administrative, state and local tax, insurance, advertising or other costs.

HBK CPAs & Consultants is committed to keeping you up to date on the quickly changing status of this stimulus bill. After the President signs the legislation, it is expected that subsequent guidance may be issued to further clarify the implementation of the provisions, changes, and extensions allowed for in this bill. To discuss your individual or business situation concerning the COVID-19 pandemic, or for any questions related to this stimulus package, please contact your HBK Advisor.  

As Senate leaders continue to progress towards passing a new stimulus package, many business owners and individuals are anxious to learn how a potential deal may support them through the ongoing COVID-19 pandemic. HBK CPAs and Consultants is following these negotiations and will provide details if legislation is signed into law. Proposed changes to the Paycheck Protection Program (PPP) include:

• Clarification of the tax treatment of forgiven PPP loans allowing a deduction for business expenses paid with PPP loan proceeds, and used to substantiate forgiveness.
• *Note that as these changes are not final, PPP loan borrowers should still plan for the possibility that expenses paid with PPP loan proceeds and used to substantiate forgiveness will not be deductible.
• A new round of PPP loans for eligible borrowers. Congress may target smaller businesses impacted by COVID-19, which means that new eligibility criteria may be used. Interested borrowers will need to reconsider whether they are eligible for the next round of loan funding.
• Simplified forgiveness application processes for certain borrowers.

Other stimulus discussions include:

• Direct stimulus payments of $600 to eligible individuals
• The renewal of certain unemployment benefits
• Other support for COVID-19 protection and prevention programs, such as funds for vaccine development and testing

Congress has indicated negotiations may continue into the weekend. Therefore, these changes are not yet law, and those using current stimulus funds, whether through the PPP program or other COVID-19 relief funds, should continue following the rules that are available. For legislative updates, visit www.hbkcpa.com/covid19 or contact your HBK Advisor.

Now more than ever compliance matters. We continue our 100 Day Dealership Action Plan series this week we focus on compliance guidelines to keep your dealership safe and protect your future.

Amy Reynallt stops to give us an update on the PPP Loan Necessity Questionnaire and other hot topics.

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As PPP loan forgiveness applications are being prepared by companies across the country, Congress is working on a stimulus package rumored to include provisions that reverse the IRS ruling that expenses paid with forgiven PPP funds will not be eligible for a 2020 tax year deduction. While we’re hopeful that comes to pass, we should be prepared if in fact, these amounts remain non-deductible. To that end, contractors should be aware of accounting issues unique to their industry relating to non-deductible PPP loan forgiveness.

Under IRC Section 460, “small” contractors (under $26 million) have a few options on the accounting method they can use for long-term contracts. One such popular method is the completed contract method, which allows contractors to defer reporting profit—revenue and expenses—until the year in which the job is completed. While this method can produce an attractive income deferral, in 2020 it comes with a caveat. If PPP funded compensation and other expenses remain non-deductible, contractors don’t have to concern themselves with that portion of the costs for jobs completed in 2021 until 2021.

Contractors can also choose to employ the percentage-of-completion accounting method. This method recognizes job profit based on how far a job has progressed at the end of a tax year. All “large” contractors are required to use this method. The percentage of the job costs that have been incurred to date is applied to the total contract price to determine how much revenue must be recognized on that job. However, if these jobs have PPP funded costs that are non-deductible, they should be excluded from the computation, thereby reducing the percentage-of-completion of the job and the amount of revenue to be recognized in the tax year.

Both methods could result in tax deferrals unique to contractors. Understanding how these costs interact with your method of accounting is paramount to ensuring your company is paying the least amount of tax in the event Congress does not overturn the IRS ruling. It will be imperative for contractors not only to document that their PPP expenses were used on allowable costs but also to track them back to the jobs on which they were incurred. HBK Construction Solutions can help you ensure you are documenting and job-costing your costs correctly to be certain you can take advantage of these deferrals and evaluate the various available accounting methods to ensure you maximize the cash retained by your business.