Tag: senate

Flexibility Act Loosens Restrictions in PPP Loan Program

On Friday morning the President signed into law the Flexibility Act (the “Act”) making significant changes to the forgiveness portion of the Paycheck Protection Program (PPP). These changes will triple the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans.

Flexibility Act

Key changes to the PPP program brought by the Flexibility Act include:

  • Covered Period: PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  • Payroll Cost Percentage: The payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven (although there is talk of a possible technical correction to this).
  • Employee Rehiring Date: Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30. 
  • Exemptions Based on Employee Availability: The Act includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they do not fully restore their workforce. The Flexibility Act allows borrowers to adjust their calculations because (1) they could not find qualified employees or (2) were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
  • Loan Maturity Period: Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
  • Extended Deferral Period: Payment of principal, interest and fees are deferred until forgiveness is remitted to the lender, only if the borrower applies for forgiveness within 10 months after the last day of the covered period.
  • Payroll Tax Deferral: The Act allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

Loan Forgiveness Guidance

Earlier, the SBA released new guidance addressing loan forgiveness under the PPP, as well as the SBA’s loan review procedures. Some of this earlier issued guidance has now been overtaken by the passage of the Act.

Noteworthy aspects of the loan forgiveness guidance that remain intact include the following:

Payroll Costs

  • Reaffirms that, in general, payroll costs paid or incurred during the 8 weeks following disbursement of the loan (i.e., the “covered period”) are eligible for forgiveness, but that borrowers may also use an “alternative payroll covered period” as set forth in the instructions to the Loan Forgiveness Application, in which the borrower may opt to use a covered period beginning on the first day of the borrower’s first payroll cycle;
  • Confirms that payroll costs are generally incurred on the day the employee’s pay is earned (i.e., the day the employee worked) and clarifies that where employees are not performing work and are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day the employee would have performed work);
  • Confirms that employee bonuses and hazard pay are eligible for payroll costs, as long as the employee’s total compensation does not exceed the $100,000 annualized cap;
  • Wages paid to furloughed employees during the covered period are eligible for forgiveness;
  • Clarifies that owner-employees and self-employed individuals are limited to “payroll compensation” no greater than the lesser of 8/52 of 2019 compensation or $15,385 per individual, and owner-employees are further capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Schedule C filers are capped by the amount of their owner compensation requirement, calculated based on 2019 net profit. And general partners are capped by the amount of their 2019 net earnings from self-employment, subject to certain reductions.

Nonpayroll Costs

  • Reaffirms that nonpayroll 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, but clarifies that if a borrower’s nonpayroll expenses straddle the covered and noncovered period and are paid after the covered period (e.g., a borrower’s “covered period” ends on July 26 and its electricity expenses for July are not paid until August 10), the borrower may seek partial forgiveness of the expenses incurred during the covered period but paid on the next regular billing date (e.g., electricity expenses for July 1-26 are forgivable);
  • Advance payments of interest on mortgage obligations are not eligible for loan forgiveness.

Forgiveness Reductions

  • Confirms that EIDL advances will be deducted from loan forgiveness amounts.

Head Count Reduction – Computations

  • Borrowers will not be penalized for voluntary resignations and schedule reductions or for-cause terminations;
  • Aa “full-time employee” is an employee who works 40 hours or more, on average, each week, and is given a full-time equivalent (FTE) weighted of 1.0;
  • In calculating the FTE of part-time employees, borrowers may either add the hours of all part-time employees and divide by 40, or elect, “for administrative convenience . . . to use a full-time equivalency of 0.5 for each part-time employee,” as long as the borrower applies the chosen method consistently.

Salary/Wage Reductions

  • Confirming that the 25% salary/wage reduction calculation (for employees who were not paid more than the annualized equivalent of $100,000 during any 2019 pay period) is performed on a per-employee basis and not in the aggregate.
  • Clarifying that borrowers will not be doubly penalized for reductions, such that the salary/wage reduction applies only to the decline in employee salary and wages not attributable to the FTE reduction.

Lenders

  • The SBA guidance also confirms that lenders have 60 days from receipt of a complete forgiveness application to issue a decision to the SBA, and that the lender must request payment from the SBA at the time it issues its decision to the SBA.  Further the SBA is required to remit the appropriate forgiveness amount to the lender, plus any interest that accrued during that period, subject to “any SBA review of the loan or loan application.”

Loan Review Guidance – Rules for Borrowers

The SBA provided guidance clarifying various components of its loan review process including:

  • Clarifying that the SBA may review “any PPP loans,” at any time in its discretion, and that the SBA may consider in that review whether a borrower correctly calculated the loan amount, properly used the loan proceeds, and/or is entitled to the loan forgiveness amount sought (this presumably includes loans smaller than $2 million, notwithstanding the SBA’s previous suggestion in FAQ 46 that audits will be focused on loans of $2 million or more).
  • Requiring Borrowers to retain PPP documentation for at least 6 years after the date the loan is forgiven or paid in full, and the SBA must be granted these files upon request.
  • If the SBA believes a borrower may be ineligible for the loan or for some forgiveness amount, it will require that the lender make a written request for additional information from the borrower, and it may also request information directly from the borrower. All information provided by the borrower in response (either directly to the SBA or through the lender) will be considered in the SBA’s review.
  • Failure to respond to the SBA’s request for information may result in a determination that the borrower is ineligible for forgiveness or for the loan itself.
  • Emphasizing that the shareholders, members, or partners of a borrower that is deemed ineligible to have received a PPP loan will not be protected by “the CARES Act’s nonrecourse provision … which limits SBA’s recourse against individual shareholders, members, or partners of a PPP borrower for nonpayment of a PPP loan ‘only’ if the borrower is an eligible recipient of the loan” (emphasis added).
  • Borrowers have the opportunity to seek reconsideration and appeal of review decisions. Procedural rules covering this process are expected from the SBA.

This alert serves as a general summary, and does not constitute legal guidance. All statements made in this article should be verified by counsel retained specifically for that purpose. Please contact us with any specific questions.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

Best Lobbying Approach for the Remainder of the Legislative Session? Be Ready For Anything!

In my sixteen years in the Michigan House and Senate (spread out between 1990-2018), I’ve learned many lessons. This latest lesson to us all is “to be ready for anything.” No amount of experience could have prepared the Legislature for the challenges the coronavirus pandemic is currently presenting. Unprecedented public health challenges and logistical challenges will need to be addressed to simply keep the Legislative Branch operational.

As of this writing, based upon my conversations with both members and staff of the House of Representatives and the Senate, no one is precisely certain of the specifics of how the people’s business will be conducted. As was demonstrated by the House and Senate session of April 7th, the utmost effort is being made to protect the health and safety of members, staff, and citizenry alike. The session calendar indicates a return to Tuesday, Wednesday, Thursday session days beginning May 5th, save the extension of the “stay-at-home” order, and in the coming weeks there is a Joint Committee meeting on the COVID-19 response. In keeping with Governor Whitmer’s Executive Order, both partisan and non-partisan staff are working entirely from home–and they could remain so even after the “stay-at-home” order is lifted or modified. The logistical challenges of facilitating committee and floor action may result in far fewer, but much longer, session days.

The pressures of the Legislative Calendar have always been used by the Caucus leaders to compel the “Collective Legislative Mind” to focus on the challenges before it. This dynamic will be magnified ten-fold in the session days that remain before the summer recess. The demands of addressing the policy and budgetary aspects of the coronavirus crisis, the normal aspects of the Appropriations process, and individual members and caucus policy priorities will tax the Legislature to its limits.

I am confident they are up to the task.

The House and Senate will undoubtedly “Burn the Midnight Oil” for the balance of the spring session.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Director of Governmental Affairs at Fraser Trebilcock, David B. Robertson was a Michigan State Senator of the 14th District of Michigan, representing Southeastern Genesee County and Northwest Oakland County. While a State Senator, Mr. Robertson was elected Caucus Chairman by his colleagues, and introduced non-partisan legislation positively impacting Michigan residents. He can be contacted at 517.377.0836 or drobertson@fraserlawfirm.com.

Congress Passes SECURE Act

Yesterday (December 19, 2019), Congress finally passed the Setting Every Community Up for Retirement Enhancement Act (i.e., the “SECURE Act”), and President Trump is expected to sign it. The SECURE Act was previously passed by the U.S. House of Representatives in May on a 417-3 vote, but got held up in the Senate for political reasons, even though it enjoyed virtually unanimous support there as well.

The version of the Act that was eventually passed includes only minor changes from the version that the House passed in the Spring. This legislation is the most significant change to the laws governing retirement plans since the Pension Protection Act of 2006. Among the significant changes made by the SECURE Act are:

  • Relaxation of the rules governing eligibility to participate in a multiple employer retirement plan, which will make it easier for unrelated employers to participate in the same plan (also known as “Open MEPs”).
  • Increase in the age for required minimum distributions (“RMDs”) from 70½ to 72.
  • Required retirement plan eligibility, at least for elective deferral purposes, for long-term part-time employees who work at least 500 hours during each of three consecutive years. The Act does contain nondiscrimination testing relief with respect to these individuals.
  • Relaxation of certain timing and notice rules relating to safe harbor 401(k) plans.
  • Penalty-free distributions from qualified retirement plans for births and adoptions.

These changes, and others included in the SECURE Act, will have a major impact on both plan sponsors and participants, and will eventually require plan amendments. These changes will also have a significant impact on existing and future estate plans that involve retirement plan assets. Most of the changes are effective January 1, 2020, and thus will require almost immediate changes to plan administration.

If you have any questions about the upcoming changes made by the SECURE Act, please contact Brian Gallagher at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

A Look at The Senate Tax Reform Bill

Fraser Trebilcock continues to monitor the tax reform plans moving through the House and Senate.  As we mentioned in our last post, the various proposals are a bit of a moving target and are in at state of flux. On November 9, the Senate Finance Committee released its “policy highlights” outlining their goals for tax reform.  The Senate framework has many proposals which are similar to the House bill released on November 2, but it also has a number of significant differences. On November 13, the Senate Finance Committee began its markup of its version of the Tax Cuts and Jobs Act, a summary of which was released last Friday and summarized below. Members of the senate Finance Committee have thus far filed 355 amendments.

Meanwhile the House Ways and Means Committee voted out its markup which makes a number of changes to the House Bill originally introduced.  The House Rules Committee is scheduled to meet on Wednesday, November 15, on that version of the House Bill approved by the Ways and Means Committee.  A floor vote is expected on Thursday, November 16.

The Senate anticipating to vote on their version as early as the week following Thanksgiving. After that, it is expected that the bills will head to a marathon conference in the first two weeks of December with at vote in both houses by the third week of December with final legislation being presented to the President’s signature by Christmas.  Below is a summary of the Senate Bill, with the differences noted between the completing bills noted appropriately.

Individual Provision

  • New individual income tax rates. The Senate plan provides a reformed tax rate structure of 6 rates verse the 4 in the House Bill. The Senate plan maintains the 10% bracket and provides a 38.5% bracket for high-income earners.
  • Standard deduction increased. The Senate plan would increase the standard deduction to $24,000 for joint returns and surviving spouses, $18,000 for single parents, and $12,000 for individuals. This is up from $12,700, $9,300, and $6,350 under current law.
  • Child tax credit. The Senate plan would expand the child tax credit from $1,000 to $1,650 and substantially lift existing caps.
  • State and local tax deduction. The Senate plan would repeal in full the deduction for State and local taxes. The House plan, in contrast, retains the state and local property tax deduction up to $10,000.
  • Retained credits & deductions. The Senate plan retains many current law provisions that have been potentially targeted for repeal in the House bill, including:
    • the child and dependent care credit;
    • the adoption credit (although this has been restored);
    • the deduction for charitable contributions;
    • the deduction for medical expenses;
    • the enhanced standard deduction for the blind and elderly;
    • provisions that provide “education relief for graduate students”;
    • the home mortgage interest deduction, preserved for existing mortgages and maintained for newly purchased homes up to $1 million;
    • the earned income tax credit; and
    • retirement savings programs including 401(k)s and IRAs.
  • Alternative minimum tax. Like the House plan, the Senate plan proposes to repeal the Alternative Minimum Tax.
  • Estate tax. Unlike the House bill, the estate tax itself would not be repealed but instead, the current exemption would be doubled.

Business Provisions

  • New corporate tax rate. The Senate plan would permanently lower the corporate tax rate to 20%. However, unlike the House bill, this reduction reportedly wouldn’t go into effect until 2019.
  • Deduction for pass-through businesses. The Senate plan would establish a “simple and easy-to-administer deduction for pass-through businesses of all sizes.”
  • Expensing. The Senate plan would allow for full and immediate expensing of new equipment. Unlike the House bill, which generally allowed for full expensing for five years, this provision would be permanent.
  • Enhanced cash accounting. Under the Senate plan, more businesses would be allowed to use the cash-basis accounting method.
  • Retained credits and deductions. The Senate plan would retain many current law provisions that have been potentially targeted for repeal, including:
    • the low-income housing credit;
    • the research and development credit; and
    • the interest deduction for “Main Street employers.”

International Provisions

  • Shift to territorial system. The Senate plan would eliminate the current “worldwide” system of U.S. taxation and change to a territorial system.
  • Repatriation. The Senate plan would eliminate the “lock-out effect” by making it “simpler and less onerous for American multinationals to bring foreign earnings back to America.”

Also yesterday the House Ways and Means Committee reported out it’s Bill after amendments. The changes bring the cost of the legislation down to the $1.5 trillion revenue loss that was agreed to in the budget. Among the key changes are:

Individual Provisions

  • New rate for certain small business income. The original Bill contained a new 25% maximum rate on business income of individuals who are active partners or S corporation shareholders. This provision has now been eliminated.  The amended Bill now provides a new a 9% tax rate, in lieu of the ordinary 12% tax rate, for the first $75,000 ($37,500 for single filers and $56,250 for heads of household filers) in net business taxable income of an active owner or shareholder earning less than $150,000 in taxable income ($75,00 for single filers and $112,500 for heads of household filers) through a pass-through business, such as an LLC or S corporation. This new 9% rate is to be phased in over five years.
  • Restores and preserves the adoption credit.
  • Moving expenses deduction for service members. The amended Bill preserves the above-the-line deduction for moving expenses of a member of the Armed Forces on active duty.
  • Certain rollover from 529 plans. Rollovers between qualified tuition programs and ABLE programs (ABLE Accounts, which are tax-advantaged savings accounts for individuals with disabilities and their families). This new provision would allow rollovers from section 529 plans to ABLE programs.

Business Provisions

  • Limitation on lowered corporate tax rate. The original House bill provided for lower corporate tax rates. This amendment lowers the 80% dividends received deduction to 65% and the 70% dividends received deduction to 50%, and thus preserves the higher current law effective tax rates on income from such dividends.
  • Easing of limit on reduction of business interest. Under the original House Bill, every business was to be subject to a disallowance of a deduction for net interest expense in excess of 30% of the business’s adjusted taxable income. That provision has been eased for taxpayers that paid or accrued interest on “floor plan financing indebtedness”.
  • Modification of treatment of S corporation conversions into C corporations. This new provision provides that distributions from an “eligible terminated S corporation” would be treated as paid from its accumulated adjustments account and from its earnings and profits on a pro-rata basis.
  • Amortization of certain research and experimentation expenditures. The amended Bill provides that certain research or experimental expenditures are required to be capitalized and amortized over a 5-year period (15 years in the case of expenditures attributable to research conducted outside the U.S.).
  • Preserves the current rules regarding nonqualified deferred compensation. The original House Bill tightened up rules regarding nonqualified deferred compensation. The Bill reported out yesterday strikes this provision, so that the current-law tax treatment of nonqualified deferred compensation is preserved.
  • Change in the treatment of restricted stock units. The House bill, would have given certain employees of nonpublic companies who receive stock options or restricted stock, an election to defer income recognition for up to five years. As amended, restricted stock units are not eligible section 83 treatment except as provided in new section 83(i).

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.