Net Operating Losses – New Opportunities
We hope you are all in good health and safely waiting for this period to subside. Many of us are thinking about our businesses and what the new normal will hold. Many businesses will face tremendous challenges to reopen their doors and the enhanced ability to obtain tax refunds will be helpful. This letter summarizes the CARES Act provisions regarding harvesting business losses. A brief history will help highlight the importance of the changes.
The Tax Cut and Jobs Act enacted at the end of 2017 (TCJA) imposed limitations on the use of business losses. Net losses from active trades or businesses were limited to an inflation – adjusted amount of $250,000 for single filers and $500,000 for joint returns. These limitations dramatically affected taxpayers who suffered business losses or reported losses from partnerships or subchapter S corporations. For example, an individual, with no other source of income, who experienced a business loss of $350,000 was permitted to deduct only $250,000 in 2018; and the remainder carried forward indefinitely until sufficient income was recognized.
The TCJA also limited the use of that net operating loss. It generally eliminated the ability to carry the loss back to earlier years and limited the utilization in future years to 80% of taxable income. As a result, the taxpayer in our example was unable to currently benefit from the business loss and was forced to wait until future years to use the loss.
The CARES Act allows the full amount of these business losses to be used for 2018, 2019 and 2020. It also provides that net operating losses from those years may be carried back five years. The ability to recognize and carryback business losses will result in substantial refunds for many taxpayers. The taxpayer in our example may carry the entire $350,000 loss back to 2013 (and succeeding years) until the entire loss has been absorbed.
Another important change in the CARES Act applies to commercial properties, retail stores and restaurants. Any such business that made qualified property improvements in 2018 (and later years) is now permitted an immediate deduction. The CARES Act allows an amended return to be filed claiming these deductions – which can be used in conjunction with the changes in the net operating loss provisions to provide an immediate source of funds.
Steps:
The above is an overview designed to inform you of these important opportunities. The Internal Revenue Service has just released new guidance describing how to amend returns and promptly apply for and receive these tax refunds. Consult your tax advisers as soon as possible because there are important time limitations for filing certain refund requests.
We again wish everyone good health for yourselves and for your family.
Sincerely,
The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate to only follow the information listed here. If you or your business requires assistance, please contact Robert Barnett, Esq., rbarnett@cbmslaw.com
COVID-19’s Effect on Your New York Contracts
The novel coronavirus (“COVID-19”) pandemic has created economic hardships for businesses and individuals that have and will continue to affect contractual obligations. New York law provides several defenses to fulfilling your contractual obligations that may be available during this time. In some situations, invoking these defenses may temporarily suspend or eliminate performance obligations, while in others they may terminate the contract. CBMS can advise you on strategies to address potential breaches, either through renegotiating contracts or in litigation, if negotiation strategies fail.
Review Contracts
The place to start is to review your contracts for provisions that may excuse failure to perform or provide other alternatives to timely performance. These provisions may have notice requirements, which are important to be aware of early.
Force Majeure
Your contract may include a “force majeure” (or “Act of God”) provision that may protect parties if events beyond their control, such as wars, floods, earthquakes, or travel bans, make it impossible to perform contractual obligations. In New York, contracts must explicitly include a force majeure provision to be able to use this doctrine.
New York courts typically interpret force majeure provisions narrowly. If the provision lists specific events, courts will excuse performance only if one of these events occurred. If your contract includes a force majeure clause that lists “pandemics,” “epidemics,” “viral outbreaks,” “quarantines,” “travel bans,” or other similar terms, it may be possible to use it to excuse or delay performance of contractual obligations as a result of COVID-19.
If your contract includes a force majeure clause, you must also be prepared to show that COVID-19 made it impossible for you to perform and that you made reasonable efforts to avoid failure to perform but were unsuccessful. You may also have to show that COVID-19 was unforeseeable at the time you entered the contract. Therefore, if you entered the contract after COVID-19 had become a global pandemic, it may also be difficult for you to use this provision.
There are several other defenses that may excuse potential breaches in New York.
Termination: Some contracts include provisions that allow a party to terminate the contract under certain circumstances. These provisions may apply in the COVID-19 pandemic.
Extension of Time: Your contract may include provisions that permit extensions of time if unexpected events occur. Even if your contract does not, it may be worthwhile to try to negotiate in good faith an extension with the other party if performance will become possible when the effects of COVID-19 lessen. These negotiations may help you avoid litigation.
Explore Your Other Options
If your contracts do not include the clauses discussed above, or if the clauses are ambiguous or inapplicable, you may still have options. New York courts have created certain defenses that, while not contained within the four corners of the contract, may be used to try to avoid liability for breach of contract: Frustration of purpose, impossibility, or impracticability.
Frustration of purpose excuses failure to fulfill contractual obligations when an unforeseen event makes a contract virtually worthless.
Impossibility excuses breach of contract when an unanticipated event destroys the subject matter or the means of performance of the contract such that performance is objectively impossible.
Impracticability under the Uniform Commercial Code may be used if the contract is for the sale of goods and a contingency occurs that makes performance impracticable and the nonoccurrence of the contingency was a basic assumption of the contract.
The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate to only follow the information listed here. If you or your organization require assistance, please contact Elizabeth Cate Esq., ecate@cbmslaw.com, Joseph Milano Esq., jmilano@cbmslaw.com, or Peter Sanders Esq., psanders@cbmslaw.com .
Reimbursement for Mandated Sick and Family Leave Pay
As a response to the COVID-19 pandemic, President Trump signed into law the Families First Coronavirus Response Act (the “FFCRA”) along with the Coronavirus Aid, Relief, and Economic Security Act (as detailed in our previous client alert and article). The FFCRA requires small and mid-sized employers (including nonprofit and religious organizations) with less than 500 employees to provide paid sick and family leave for employees who are unable to work due to the COVID-19 pandemic, while also reimbursing employers for such compensation. It is important to note that certain small businesses (including religious and nonprofit organizations) are exempt from the mandated paid leave requirements under FFCRA as discussed below.
QUALIFYING REASONS FOR LEAVE
An employee qualifies for paid sick leave under the FFCRA if the employee (excluding health care providers and emergency responders) (a) has worked for at least thirty (30) days prior to taking paid leave and (b) is unable to work (or unable to work remotely) because the employee:
i. is subject to a Federal, State, or local quarantigne or isolation order related to COVID-19;
ii. has been advised by a health care provider to self-quarantine related to COVID-19;
iii. is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
iv. is caring for an individual subject to an order described in (i.) or self-quarantine as described in (ii.);
v. is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19; or
vi. is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
In addition to paid sick leave, an employee can qualify for up to an additional 10 weeks of paid expanded family and medical leave if the employee is unable to work due to a bona fide need to care for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
DURATION OF LEAVE & MAXIMUM PAYMENT
The maximum paid leave time is 80 hours over a two-week period, so an employee cannot take 80 hours paid leave under one qualifying reason and then additional paid leave for a second qualifying reason. It is critical for employers to pay close attention to the limits for the duration of employee leave and the maximum payment permitted, as the employer will not be reimbursed for any wages paid beyond the limits.
RECOVERABLE COSTS
In order to be eligible for reimbursement, which comes in the form of tax credits, the employer must be withholding payroll taxes from its employees. Under the FFCRA, qualified employers can receive 100% reimbursement through tax credits for all “qualifying wages” paid to their employees for the period between April 1, 2020 and December 31, 2020. A “qualifying wage” is defined as compensation paid to an employee who takes leave under the FFCRA for a qualifying reason (as listed above), up to the appropriate per diem and aggregate payment caps. Employers may also receive additional reimbursement through tax credits for amounts paid or the cost incurred to maintain the employee’s health insurance coverage during the paid leave period.
EXEMPTION UNDER FFCRA
There is an exemption under FFCRA which provides that the Secretary of Labor has the authority to exempt small businesses (including religious and nonprofit organizations) from the mandated paid leave requirements, if (a) the employer has less than 50 employees, (b) the employee has requested sick or medical leave to care for a child because schools or childcare services are unavailable due to COVID-19, and (c) providing such compensation would critically impact the viability of the business/organization, such that compensation under FFCRA would (i) cause the business/organization to cease operation, and (ii) pose a substantial risk to the financial wellbeing of the business/organization or (iii) generate an inability to find enough able, willing, and qualified employees to provide the required services and labor. Employers falling under this exemption should maintain records evidencing employee requests for paid leave as well as the impact such compensation would have on the business.
Additionally, employers may be exempt from the requirements under FFCRA for paid sick, medical and family leave for clergy (including pastors) and thus employers would also not be entitled to any reimbursement for paid leave of their clergy. At this point it is unclear whether clergy are excluded from the term “employee” under the FFCRA – check back for an update when more information on the regulations and exemptions are published.
NEW YORK STATE PAID SICK TIME PLAN
Additionally, on March 18, 2020, Governor Andrew M. Cuomo passed a paid leave law for COVID19, the Paid Sick Time Plan, which provides additional reliefs for residents. Employee benefits depend on the size of the employer. If there are additional benefits not given under the federal program, then New York State will provide the incremental difference. See here for specific requirements and details provided by New York State.
ADDITIONAL RESOURCES
- The U.S. Department of Labor’s Wage and Hour Division (the “Department”) is responsible for administering and enforcing the new law’s paid leave requirements. The Department’s WHD posted a temporary rule issuing regulations pursuant to the law that can be found here.
- The U.S. Department of Labor Wage and Hour Division have released a webinar focusing on the FFCRA, which can be accessed here, along with corresponding PowerPoint slides here.
- You can access an expansive FAQ provided by the Department’s WHD to assist employees and employers here.
- A poster for your workplace can be accessed here, which will fulfill employer notice requirements. For an FAQ on these notice requirements, see here. This Field Assistance Bulletin explains the Department’s WHD’s 30-day non-enforcement policy.
- The Department’s WHD provides additional information on common issues employers and employees face when responding to COVID-19 and its effects on wages and hours worked under the Fair Labor Standards Act and job-protected leave under the Family and Medical Leave Act.
Disclaimer:
The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate to only follow the information listed here. If your religious corporation or nonprofit organization requires assistance, please contact Jodi Warren, Esq., at Jwarren@cbmslaw.com or Renato Matos, Esq., at Rmatos@cbmslaw.com.
© 2020 Capell Barnett Matalon & Schoenfeld LLP. All rights reserved. Attorney advertising
Reviewing Your Estate Planning During COVID-19
By: Gregory L. Matalon Esq., and Erik M. Olson Esq.,
Over the past few weeks, our firm has received increased inquiries regarding estate planning options and considerations. While the needs of each family and individual differ, many of the questions focus on the basics: If I get sick, who will make health and financial decisions for me? Upon my death, who will handle my affairs, receive my assets, and take care of my young children (and pets)? How should I organize my important documents and where should I keep my documents?
If you are reviewing your estate planning documents, focus on the essentials. If you have not yet created estate planning documents, you may wish to use this bit of “downtime” to think about these issues. Below are some things to consider:
1) Health Care Proxy and Living Will
- A health care proxy allows you to appoint an agent to make health decisions for you if you are unable to do so. Your agent must be over the age of 18, and should be someone that understands and will abide by your wishes and instructions. You may also designate successor agents. The health care proxy should also provide a HIPAA release, so that your agent can receive your medical records and information.
- A living will allows you to state your wishes for medical treatment, so that the doctors, hospital staff, and your health care agent are guided accordingly. Review your living will to determine if your wishes are accurately stated.
2) Durable Power of Attorney
- A durable power of attorney allows you to designate an agent (or agents and/or successor agents) to act on your behalf in financial matters. These actions can include, among other things: real estate, banking, and business transactions, access to digital assets, and authority to handle personal and other tax matters. Review your power of attorney and the authority that you have provided to your agent.
- Your agent must be over the age of 18, and should be someone that you trust to make financial decisions in your best interest.
- When appropriate for tax and elder law planning, a statutory gift rider can be attached to the power of attorney to provide your agent with gifting powers and limitations.
3) Last Will and Testament – Your will is one of the central documents to provide for the distribution of your property.
- In your will, your executor (the person(s) or entity that manages your estate) will be responsible for collecting assets, paying expenses and taxes, and ultimately distributing your remaining assets as provided in your will.
• Choosing your executor is important. An individual executor must be over the age of 18, and not be a convicted felon (other legal requirements may also apply). Your Executor should have the proper balance of management ability and personal insight into your family and your wishes. Your executor will also be responsible for making various tax elections that will affect your beneficiaries.
• It is important to provide adequate discretion and powers for your executor depending on the nature of your assets. For example: If you have a business, does your will allow your executor to continue your business?
- Review your current assets and liabilities and how they are titled.
• Prepare a financial summary.
• Your will only controls assets which are held in your name alone, and without named beneficiaries; jointly held assets and assets with named beneficiaries pass outside the will.
• Review applicable current federal and state estate and income tax laws with your advisors.
- Have you addressed major life changes, such as marriages, divorces, births and deaths?
- Once you have determined who will receive your assets, it is important to decide how each beneficiary will receive his/her inheritance – outright or in a trust. There are various tax, management and asset protection reasons to create a trust. Your will can create one or more trusts that state how the assets will be invested, managed and distributed. Your selection of trustee(s) and successor trustees is important. Trustee discretion and powers are also important, and should be reviewed.
• Common types of trusts created in a Will include:
• Trusts for individuals under a certain age
• Supplemental Needs Trusts
• Credit Shelter/Renunciation/Disclaimer Trusts
• QTIP Trusts
• Generation-Skipping Trust
• Trusts for asset protection/management
• Qualified Subchapter S Trusts (consider if you own an interest in a Subchapter S corporation)
• Pet Trusts
4) You may have also created one or more lifetime trusts for estate tax planning, elder planning or other purposes. Confirm that your trusts still satisfy your goals. When reviewing the trust agreement, focus on (i) the assets titled to the trust, (ii) the appointed and successor Trustees, (iii) the current and ultimate beneficiaries of the trust, and (iv) the Trustees’ authority to manage, invest and distribute the assets.
5) Review all beneficiary designations to confirm they are consistent with your plan. Confirm that the individuals/charities you wish to benefit are properly and clearly described. It is important that certain assets, such as retirement accounts, have designated beneficiaries.
6) Clients often ask where to store their documents. Documents should be kept in a safe place that is accessible to the individuals appointed in your documents. If you have stored documents in your safe deposit box, please make sure that your agent(s) can access the box during your lifetime, and that your nominated executor can access the box after your death. If the documents cannot be accessed, additional steps will be required.
To aid your agents, executors and trustees, you may wish to create folders containing:
- Business, financial and personal statements/documents,
- A password list,
- Names and contact information of your family members and friends, medical professionals, legal and financial advisors, etc.,
- Recent business and individual income tax returns, and
- Funeral, burial, and other instructions.
If you wish to create, discuss or amend your plan, we are available to assist, and can do so online without an office visit. Most importantly, we hope that you are taking steps to stay safe, and we wish you and your family good health.
If you have any questions, please contact our estate planning and elder law attorneys:
Gregory L. Matalon, Esq., Partner, gmatalon@cbmslaw.com
Erik M. Olson, Esq., Associate, eolson@cbmslaw.com
Robert S. Barnett, Esq., Partner, rbarnett@cbmslaw.com
Stuart H. Schoenfeld, Esq., Partner, schoenfeld@cbmslaw.com
Jordan Kanzer, Esq., Associate, jkanzer@cbmslaw.com
Damianos Markou, Esq., Counsel, dmarkou@cbmslaw.com
Monica P. Ruela, Esq., Associate, mruela@cbmslaw.com
ATTORNEY ADVERTISING: This memorandum provides general information on legal issues and developments of interest to our clients and friends. It does not provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters we discuss here. Should you have any questions or wish to discuss any of the issues raised in this memorandum, please call your Capell Barnett Matalon & Schoenfeld LLP contact.
Associate Jodi Warren’s Article Featured in New York Real Estate Journal
Amid the Covid-19 pandemic nonprofits and religious organizations can seek relief through the Paycheck Protection Program. Check out CBMS Attorney Jodi Warren’s article, ‘Economic Relief for Non-Profit Organizations Through the Paycheck Protection Program,’ that was recently published in the New York Real Estate Journal. See full article
SIGNING OF WILLS IN NEW YORK DURING COVID-19
On April 7, 2020, in response to the ongoing COVID-19 crisis, New York State Governor Andrew M. Cuomo issued Executive Order No. 202.14. This Executive Order addresses the witnessing of wills during the current pandemic.[1]
Under New York State Estates, Powers and Trusts Law, the person executing his or her will (known as the “testator”) must either sign the will in the presence of at least two witnesses, or acknowledge his or her signature to each witness. Unfortunately, both of these acts require the testator to be in the physical presence of the witnesses, and in the era of social distancing, physical presence is both impractical and potentially dangerous.
Executive Order No. 202.14 modifies these requirements until May 7, 2020, to allow for the witnessing of wills without requiring the testator to be in the physical presence of the witnesses.
Pursuant to the Executive Order, wills may be witnessed using audio-video technology, so long as the following conditions are met (in conjunction with the standard will execution requirements):
- If the testator and the witnesses are not acquainted, the testator must present valid photo ID to the witnesses during the video conference.
- Video conferences must allow for direct interaction between the testator and the witnesses (as well as any supervising attorney); the conference must be live and not pre-recorded.
- On the same date that the testator signs the will, the witnesses must receive a legible copy of the page signed by the testator, by fax or electronic means.
- The witnesses may sign the faxed or electronically delivered signature page and return the signed page back to the testator.
This Executive Order provides a powerful tool to properly execute wills during these uncertain times. As always, it is prudent to have a licensed attorney supervise the signing of wills, and an attorney may do so by joining in the live audio-video conference.
The attorneys at Capell Barnett Matalon & Schoenfeld LLP are familiar with these rules, and are able to assist our clients with the preparation and signature of estate planning documents as required by law.
_______________________________________________________________________
[1] The Executive order also applies to virtual witnessing of health care proxies, statutory gifts riders, lifetime trusts, recording instruments affecting real property, and disposition of remains.
ATTORNEY ADVERTISING: This memorandum provides general information on legal issues and developments of interest to our clients and friends. It is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters we discuss here. Should you have any questions or wish to discuss any of the issues raised in this memorandum, please call your Capell Barnett Matalon & Schoenfeld LLP contact.
New York’s Highest Court Rules That Certain Gig Workers are Entitled to Unemployment Benefits
In the midst of the legal issues raised by the CARES Act and other matters stemming from the COVID-19 crisis, one of the questions has been whether “gig workers” are entitled to unemployment insurance benefits. As part of the CARES Act, Pandemic Unemployment Assistance (PUA) was intended to provide payment to workers “not traditionally eligible for unemployment benefits” (self-employed, independent contractors, workers with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.
In the State of New York, we are getting closer to a definitive answer, though not from the CARES Act but from the New York Court of Appeals, New York’s highest court, which issued a decision Thursday, March 26, 2020, in Matter of Vega (Postmates, Inc.) v Commissioner of Labor, 2020 WL 1452612.
One of the biggest issues is the varying definition of “gig.” I summarize and quote from that decision. The quotes may be a little lengthy but will be helpful in applying this case to other circumstances and workers. The Court of Appeals determined that THESE gig workers, at least, ARE entitled to collect unemployment benefits. The decision was written by Chief Judge DiFiore. She said, “The majority of workers in the app-enabled gig economy come from this economically vulnerable demographic . . . . Although the Unemployment Insurance Law was passed decades before the digital age, today’s app-enabled gig worker is subject to the same devastating financial ‘insecurity’ faced by prior generations of unemployed wage earners and which initially motivated legislators to act” to create the unemployment insurance program.
This case involved “Postmates,” “a delivery business that uses a website and smartphone application to dispatch couriers to pick-up and deliver goods from local restaurants and stores to customers in cities across the United States—deliveries that are, for the most part, completed within an hour. Postmates solicits and hires its couriers, who undergo background checks before being approved to work by Postmates. Once they are approved, the couriers decide when to log into the application and which delivery jobs to accept. Once a courier accepts a delivery job made available through the application, the courier receives additional information about the job from Postmates, including the destination for the delivery. After completing a job, Postmates pays the couriers 80% of the delivery fees charged to customers, and payments are made by the customer directly to Postmates, which pays its couriers even when the fees are not collected from customers. Couriers’ pay and the delivery fee are both nonnegotiable.”
The claimant, “Vega,” worked as one of those “couriers” but “Based on negative reviews from customers . . . Postmates blocked [him] from using the application” and he filed for unemployment benefits.
The Court recognized that “Unemployment insurance is temporary income for eligible employees who lose their jobs through no fault of their own.” If a worker is an “employee” unemployment contributions must be made, “rather than independent contractors for whom no such contribution need be made.”
Under the Labor Law, “employment” is broadly defined as “any service under any contract of employment for hire, express or implied, written, or oral.” The key factor in that determination “is whether the employer exercised control over the results produced by the worker or the means used to achieve the results.”
Here, “Postmates exercised control over its couriers sufficient to render them employees rather than independent contractors operating their own businesses. The company is operated through Postmates’ digital platform, accessed via smartphone app, which connects customers to Postmates couriers, without whom the company could not operate. While couriers decide when to log into the Postmates’ app and accept delivery jobs, the company controls the assignment of deliveries by determining which couriers have access to possible delivery jobs. Postmates informs couriers where requested goods are to be delivered only after a courier has accepted the assignment. Customers cannot request that the job be performed by a particular worker. In the event a courier becomes unavailable after accepting a job, Postmates—not the courier—finds a replacement. Although Postmates does not dictate the exact routes couriers must take between the pick-up and delivery locations, the company tracks courier location during deliveries in real time on the omnipresent app, providing customers an estimated time of arrival for their deliveries. The couriers’ compensation, which the company unilaterally fixes and the couriers have no ability to negotiate, are paid to the couriers by Postmates. Postmates, not its couriers, bears the loss when customers do not pay. Because the total fee charged by Postmates is based solely on the distance of the delivery and couriers are not given that information in advance, they are unable to determine their share until after accepting a job. Further, Postmates unilaterally sets the delivery fees, for which it bills the customers directly through the app. Couriers receive a company sponsored ‘PEX’ card which they may use to purchase the customers’ requested items, when necessary. Postmates handles all customer complaints and, in some circumstances, retains liability to the customer for incorrect or damaged deliveries.”
The Court continued “Postmates exercises more than ‘incidental control’ over its couriers—low-paid workers performing unskilled labor who possess limited discretion over how to do their jobs. That the couriers retain some independence to choose their work schedule and delivery route does not mean that they have actual control over their work or the service Postmates provides its customers; indeed, there is substantial evidence . . . that Postmates dominates the significant aspects of its couriers’ work by dictating to which customers they can deliver, where to deliver the requested items, effectively limiting the time frame for delivery and controlling all aspects of pricing and payment.”
“Customers cannot choose, nor do they have reason to choose, a particular individual to perform the delivery . . . Postmates’ couriers do not have the ability to create a following or generate their own customer base. Instead, Postmates has complete control over the means by which it obtains customers, how the customer is connected to the delivery person, and whether and how its couriers are compensated.”
These gig workers were considered employees and entitled to New York State unemployment benefits.
The Court’s analysis and conclusion are in accord with the trend of its decisions that the definition of “employee” is broad and expanding. Likewise, these employees should be entitled to the Federal Pandemic Unemployment Assistance benefits.
Disclaimer:
This article is for informational purposes only and does not constitute legal or business advice. If your business or organization requires assistance, please contact Joseph Milano, Esq., at jmilano@cbmslaw.com
THE CARES ACT: Expansion of the Economic Injury Disaster Loans
NON-PROFIT ORGANIZATIONS GUIDANCE
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) is designed to assist nearly every facet of the American economy, including the non-profit sector, and provides $10 billion of funds in the form of repayable loans.[i] Section 1110 of the CARES Act expands working capital loans, provided by Section 7(b)(2) of the Small Business Act, also known as Economic Injury Disaster Loans (“EIDL”), to address economic injury suffered as a result of the coronavirus (COVID-19) situation,[ii] and establishes the covered period for loans from January 31, 2020 to December 31, 2020.[iii]
ELIGIBILITY
Entities eligible to receive EIDL from the Small Business Administration (“SBA”) include:
i. small businesses (as defined using the SBA’s size and industry requirements in its “Table of Size Standards”),
ii. small agricultural cooperatives with less than 500 employees,
iii. sole proprietors,
iv. independent contractors,
v. nonprofit organizations including certain faith-based organizations,
vi. tribal businesses with less than 500 employees, and
vii. employee stock ownership plan (ESOPS) with less than 500 employees.[iv]
It is important to note that although nonprofit organizations exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code are generally eligible for EIDL,[v] the SBA’s earlier regulations prohibit EIDL to organizations “[p]rincipally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs.”[vi] However, recent guidance from the SBA suggests that it does not intend to enforce that provision of the law, and that “no otherwise eligible organization will be disqualified from receiving a loan because of the religious nature, religious identity, or religious speech of the organization.”[vii] Further, the SBA’s guidance states that EIDL “can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions.”[viii] For further information: SBA Guidance on Faith-Based Organizations.
Eligible nonprofit organizations may receive both EIDL and loans available under the Paycheck Protection Program (“PPP”)[ix], so long as such loans are not used for the same purpose or otherwise duplicative of each other.[x]
LOAN TERMS
The SBA will provide eligible entities with low interest EIDL of up to $2 million with varying repayment terms of up to 30 years.[xi] The CARES Act reduces the interest rate of EIDL from 4% to 3.75% for small businesses and 2.75% for private nonprofit organizations.[xii] Principal and interest may be deferred for up to four (4) years.[xiii] EIDL proceeds may be utilized for a boarder range of items compared to PPP loans and are intended to help overcome the temporary loss of revenue by being used to pay: fixed debts, payroll, accounts payable, and other expenses that cannot be paid as a result of the disaster.[xiv] EIDL proceeds may not be used to replace lost sales or profits, for expansion of the organization or for unnecessary expenditures.[xv] The loans are not forgivable and are required to be repaid according to the terms of the loan. The SBA will not impose any early payment penalties on the loans.
The CARES Act waives the typical requirements for EIDL, such as:
i. personal guarantee on advances and loans of less than $200,000.00,[xvi]
ii. the requirement that an applicant show that it is unable to obtain credit elsewhere,[xvii] and
iii. the requirement that the applicant must be in business for a period of 1-year before the disaster; provided the applicant was in operation as of January 31, 2020.[xviii]
APPROVAL PROCESS
During the EIDL approval process, the SBA may determine an applicant’s ability to repay the loan:
i. based solely on the applicant’s credit score; or
ii. using alternative appropriate methods.[xix]
APPLICATION PROCESS
EILD applicants must submit applications directly to the SBA and cannot apply through a bank or credit union. To the extent possible, applicants should provide as much financial information as possible upon submission of the application. To streamline the process, it is recommended that applicants submit a detailed cover letter with the application indicating the following:
i. Applicants projected economic loss, as a result of COVID-19,
ii. The amount of the requested loan, and
iii. The amount of the requested emergency advance.
The application can be completed directly through the SBA’s Disaster Assistance Program websites, Covid-19 Economic Injury Disaster Loan Application.
EMERGENCY ADVANCE
In addition to the EIDL amount, an EIDL applicant may request on its application to receive an emergency advance of up to $10,000.00 on its loan in order to help the applicant in the short-term.[xx] The SBA is required to provide the applicant with such advance within three (3) day of receipt of the application. To be considered successful, the applicant must self-certify, under the penalty of perjury, that it is an eligible entity.[xxi] The advance will not have to be repaid even if the applicant is subsequently denied an EIDL.[xxii]
If an applicant receives an emergency advance through the EIDL process and subsequently “transfers into… a loan” under SBA’s PPP, such grant amount will be reduced from the total loan forgiveness amount of the PPP loan.[xxiii]
The emergency advance may be used to address any allowable purpose for a loan made under section 7(b)(2) of the SBA, including but not limited to:
i. providing paid sick leave to employees unable to work due to the direct effect of COVID-19,
ii. maintaining payroll to retain employees during business disruptions or substantial slowdowns,
iii. meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains,
iv. making rent or mortgage payments, and
v. repaying obligations that cannot be met due to revenue losses. [xxiv]
DISCLAIMER:
The information in this article is continuously changing and being updated, and several details of the EIDL and PPP loans are yet to be announced by the U.S. Treasury and SBA and no final rules have been promulgated. This publication is for informational purposes only and does not constitute legal or business advice. Each entity, based on its specific circumstances, must determine whether to seek and secure an SBA loan. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate for all entities to seek such loans. This publication is not intended to create and the transmission and receipt of it does not constitute, a lawyer-client relationship. If your private non-profit organizations requires assistance, please contact Renato Matos, Esq., at RMatos@cbmslaw.com or David de Barros, Esq., at DdeBarros@cbmslaw.com.
© 2020 Capell Barnett Matalon & Schoenfeld LLP. All rights reserved. Attorney advertising.
[i] See id. at § 1107(a)(6) “$10,000,000,000 under the heading ‘‘Small Business Administration—Emergency EIDL Grants’’ shall be for carrying out section 1110 of this Act.”
[ii] “The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.” Disaster Loan Assistance, Economic Injury Disaster Loans, U.S. Small Business Administration, https://disasterloan.sba.gov/ela/Information/EIDLLoans (last visited April 6, 2020).
[iii] See Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, 116th Con. (2020) § 1110(a)(1), § 1110(e)(8) Termination.
[iv] See Coronavirus Aid, Relief, and Economic Security Act, H.R. 748, 116th Con. (2020) § 1110(a)(2), § 1110(b) Eligible Entities.
[v] See COVID-19 ECONOMIC INJURY DISASTER LOAN APPLICATION. U.S. Small Business Administration, https://covid19relief.sba.gov/#/ (last visited April 6, 2020).
[vi]See 13 CFR § 123.301(g). When would my business not be eligible to apply for an economic injury disaster loan?
[vii] See FREQUENTLY ASKED QUESTIONS FOR FAITH-BASED ORGANIZATIONS PARTICIPATING IN THE PPP AND EIDL LOAN PROGRAMS. U.S. Small Business Administration, https://www.sba.gov/sites/default/files/2020-04/SBA%20Faith-Based%20FAQ%20Final.pdf (last visited April 6, 2020).
[viii]Id.
[ix] For more details on the Paycheck Protection Program, see Capell Barnett Matalon & Schoenfeld LLP’s article titled: Economic Relief for Non-Profit Organizations Through the Paycheck Protection Program from April 2, 2020 here.
[x] See id. at §1102(a)(2)(36)(Q). “Nothing in this paragraph shall prohibit a recipient of an economic injury disaster loan made under subsection (b)(2) during the period beginning on January 31, 2020 and ending on the date on which covered loans are made available that is for a purpose other than paying payroll costs and other obligations described in subparagraph (F) from receiving assistance under this paragraph.”
[xi] See Coronavirus (COVID-19), supra note 3.
[xii]Id.
[xiii]Id.
[xiv]Id.
[xv]See 13 CFR § 123.303(a). You can only use the loan proceeds for working capital necessary to carry your concern until resumption of normal operations and for expenditures necessary to alleviate the specific economic injury, but not to exceed that which the business could have provided had the injury not occurred.
[xvi]See id. at § 1110(c)(1).
[xvii]See id. at § 1110(c)(3).
[xviii]Id.
[xix]See id. at § 1110(d)(1), (2) Approval and Ability to Repay for Small Dollar Loans.
[xx]See id. at § 1110(e)(3) Amount.
[xxi]See id. at § 1110(a)(2); (b); § 1110(e)(2) Verification. “…pursuant to section 1746 of title 28 United States Code.”
[xxii]See id. at § 1110(e)(5) Repayment.
[xxiii]See id. at § 1110(e)(6) Unemployment Grant.
[xxiv]See id. at § 1110(e)(4)(A)-(E) Use of Funds.
Big Changes made to the NYS Medicaid Program
New Yorkers are not only dealing with the crippling effects of COVID-19 but are now also faced with the most significant changes made to the Medicaid program in years. Governor Cuomo’s 2020-21 State Budget proposed a $2.5 billion cut to New York State’s Medicaid program and there was much speculation as to where the savings to the program would come from. Now the Governor’s budget has passed and here are the big changes you should know:
- Look-back period for Community based Medicaid. Previously, someone seeking home care or other community-based Medicaid services could apply almost immediately after transferring assets out of his or her name. Starting on October 1, 2020, applicants for home care will face a 30-month look back period (2.5 years). This means that transfers of assets made by a Medicaid applicant and/or spouse within 30 months prior to the date of application can result in a penalty period, that is a period in which Medicaid will not pay for the applicants home care services.
- Raised requirements for eligibility for Personal Care Services (“PCS”) and the Consumer Directed Personal Assistance Program (“CDPAP”). PCS and CDPAP programs both provide home health care services, such as home health care aides, in the community. The CDPAP program allows consumers to recruit, hire, and direct their own chosen home care workers. PCS provides caregivers through licensed agencies. The new criteria raise the bar for who can qualify for these services.
a) Under the new guidelines, a Medicaid recipient must require assistance with at least three (3) activities of daily living (ADLs). ADLs include activities such as, dressing, bathing, eating, personal hygiene, transferring, toileting and continence. Adding these requirements will reduce the ability of many to qualify for PCS and CDPAP services. Fortunately, those with a diagnosis of Dementia or Alzheimer’s can qualify for services needing assistance with only one (1) ADL.
b) Medicaid is also eliminating Level 1 personal care, which provides assistance to disabled individuals with such chores as shopping, laundry and meal preparation. These services are frequently required by elderly and disabled individuals in order to live safely in the community.
These changes take effect on October 1, 2020. It is clear to us that the intent of these changes is to limit the availability of these crucial programs. However, as in the past, we will continue to assist our disabled and elderly clients protect their resources and secure available care.
With these changes in mind, it is more important than ever to be proactive about your estate and asset preservation planning. Planning ahead can eliminate the stress and financial burden imposed by these new changes. We at CBMS urge those who have not yet completed or started their estate and asset preservation planning to do so without delay. We are here to answer any questions or concerns you may have. Give us a call at (516) 931-8100.
Disclaimer: The information in this article is continuously changing and being updated. This article is for informational purposes only and does not constitute legal or business advice. In no way is Capell Barnett Matalon & Schoenfeld LLP advising that it is appropriate for all entities to undertake these measures. If you require assistance, please contact Stuart Schoenfeld, Esq. at schoefeld@cbmslaw.com or Monica Ruela, Esq. at mruela@cbmslaw.com.
Resources for Religious Organizations, Foundations, Charities, and Other Non-Profit Organizations Related to Coronavirus (COVID-19)
The novel Coronavirus (COVID-19) has spread to countries worldwide. We have curated a collection of resources that may be helpful for Boards and management of religious organizations, foundations, charities, and other non-profit organizations in navigating this crisis. We will update this page as developments warrant.
Government Resources:
The Paycheck Protection Program (“PPP”) through the U.S. Small Business Administration offers loans to small businesses and non-profit organizations, among other types of entities, of up to $10 million. For more information, including about the PPP’s applicability to non-profit organizations, please see CBMS’s article.
Economic Injury Disaster Loans and Loan Advances are being provided to small businesses and private non-profit organizations by the U.S. Small Business Administration. These loans are low-interest fixed rate loans of up to $2 million and loan advances of up to $10,000 that can be used to pay immediate expenses during this emergency. For more information, please see CBMS’s guidance here.
Private Sector Relief Funds:
Facebook Small Business Grants Program is distributing $100 million in cash grants and ad credits to help small businesses weather the storm created by COVID-19. Small businesses or organizations with between 2 and 50 employees that have been operating for more than a year, have experienced challenges from COVID-19, and operate in one of the five boroughs of New York City are eligible to apply.
Citi and the Citi Foundation have committed $10 million to help Community Development Financial Institutions in the US serve small businesses who may not fully qualify for federal government stimulus funding.
Community Foundation Relief Funds for Non-Profits (NY): Service-providing non-profit organizations may be able to obtain grants and/or loans to assist in providing services to frontline workers and/or vulnerable populations. Check out the following resources:
The New York Community Trust: This fund will give grants and loans to NYC-based nonprofits that are providing aid to those struggling with fallout from COVID-19. Priority will be given to nonprofits addressing essential healthcare and food insecurity as well as arts and culture. Funds will help nonprofits with a variety of needs, including protective equipment, cleaning supplies, technological assistance, and support for financial losses.
NYC COVID-19 Response & Impact Fund: This fund is providing no-interest loans ranging from $100,000.00 to $3,000,000.00 to New York City nonprofit organizations working in the human services, with particular interest in those supporting essential healthcare, food delivery, homeless services, workforce development, educational support, and early childhood education, and arts and culture. The application through the Nonprofit Finance Fund can be found here.
Brooklyn COVID-19 Response Fund: This fund is providing grants to frontline advocacy and service organizations in Brooklyn that are providing aid to vulnerable populations, meal delivery, and daily living needs for homebound neighbors, support for low-wage workers, and limited access to healthcare and paid leave.
Neighborhoods First Fund: This fund makes grants to support community-led organizations and coalitions that engage local residents, workers, businesses, institutions, and government in creating, enacting, and implementing policies and plans that shape New York City and its neighborhoods. To inquire about a grant, fill out the form here.
Robin Hood has established a COVID-19 relief fund for organizations at the frontline of relief efforts including serving vulnerable populations, emergency assistance, at risk for govt contracts, incurred unexpected expenses.
COVID-19 Long Island Philanthropic Response Fund by the Long Island Community Foundation is providing grants to aid nonprofit organizations in Long Island providing services for those affected by COVID-19.
National Council on Aging COVID-19 Community Response Fund is providing grants to qualified local nonprofit organizations that are meeting needs of older populations.
Delta Dental Foundation is providing unrestricted grants for organizations in New York State helping vulnerable populations affected by COVID-19 in the form of medical services and/or services for home-bound seniors. See here for the grant application and guidelines.
General Non-Profit Resources:
Workplace guidance from CDC (updated regularly).
Many tech companies have made products for remote work free during this period. See this roundup.
Here is guidance on changing a physical event to a virtual event.
New York Council of Nonprofits, Inc. is hosting calls and pertinent topic webinars on a weekly basis to assist non-profits with COVID-19 updates. See the full calendar here.
Resources for Foundations:
Council on Foundations has a resource center for foundations.
Resources for Churches & Religious Organizations:
The CDC has a resource page for community and faith-based leaders.
Georgetown University’s Berkley Center for Religion, Peace, & World Affairs has a resource guide for faith-based organizations.
The Mother Cabrini Health Foundation provides grants to nonprofit organizations serving low-income individuals, families and communities in New York. All grantees must adhere to and comply with the ethical principles, tenets, and teachings of the Roman Catholic Faith, including but not limited to the Ethical and Religious Directives for Catholic Health Care Services published by the United States Conference of Catholic Bishops. Applicant organizations are not required, however, to be affiliated with the Catholic Church to be eligible for grants.
Resources for Charitable Organizations Providing Direct Relief Assistance:
The IRS has guidance on documentation a charity providing disaster relief assistance must maintain to document its relief activities.
Disclaimer:
The information provide in this resource list is continuously changing and being updated. This list is for informational purposes only and does not constitute legal or business advice. If your business or organization requires assistance, please contact Renato Matos, Esq., at Rmatos@cbmslaw.com.