Congrats to our partner, Yvonne R. Cort on being a Top 50 Women in Business honoree! The award recognizes Long Island’s top women professionals for their business acumen, mentoring and community involvement. The program’s honorees are selected by a judging committee and represent the most influential women in business, government and the nonprofit fields. For a full listing of Long Island Business News 2020 award winners, click the link below.
There’s a new twist on an old problem: how to stay current with withholding tax obligations. Prudent employers know that the company’s cash flow must be able to manage full timely payment to the taxing authorities of all taxes due. An employer who does not pay the full balance due on a Form 941 could be personally liable to the Internal Revenue Service for the trust portion.
Recent presidential action has increased the potential exposure for employers, by allowing a “payroll tax holiday”. This holiday may be fun for the employee while it lasts, but could cause major problems for both the employee and the employer when the holiday is over.
The executive order, issued August 8, 2020, applies to workers whose biweekly pay is under $4000, pre-tax. The order defers payment of the employee share of Social Security, from Sept. 1, 2020, through Dec. 31, 2020. Last minute guidance issued by the IRS on August 28, 2020, only a few days before the order took effect, clarifies that the employer is responsible for deferring the tax, and later paying it to the IRS by April 30, 2021. If the deferred amounts are not paid in full by April 30, 2021, penalties and interest will begin to accrue. Note that implementing the payroll tax deferral is elective, not mandatory.
The IRS guidance provides that the employers who choose to defer the tax in 2020, must withhold and pay the deferred taxes ratably from compensation and wages paid to the employee between January 1, 2021 and April 30, 2021. If necessary, the employer may “make arrangements to otherwise collect the total [taxes] from the employee”. It is unclear how this will be handled if an employee is no longer working for the employer after December 31, 2020. Moreover, employees may not realize that their net paychecks in 2021 will be smaller than usual, potentially leading to serious hardship.
The employer remains on the hook for the deferred payroll taxes, regardless of whether the taxes are taken out of the employee’s wages in the spring. Failure to pay the deferred tax could result in personal liability of the owner, director, or shareholder of the employer, or other responsible individuals.
Pursuant to Internal Revenue Code Section 6672, the IRS can assert the trust fund recovery penalty against an individual who is under a duty to collect and pay over the withheld income or employment taxes, and fails to do so. There are numerous factors to be reviewed in determining who is responsible. Some of the factors considered by the IRS are the individual’s title and position in the company, authority or control over how funds are disbursed, signatory authority for checks, and ability to hire and fire employees. The person must also have acted willfully, with intent or intentional disregard, in failing to pay the taxes. The IRS will find intent or willfulness if the “responsible person” knowingly paid other expenses while the taxes remained unpaid.
Trust fund recovery penalties, also known as civil penalties, are particularly harsh in their effect. Multiple individuals could be assessed; personal assets can be seized including bank accounts, retirement accounts and real property; and liens are filed, which affect the ability to refinance or sell one’s home, among many other ripple effects. The trust fund recovery penalties are assessed even if the business closes – in fact, especially if the business closes, as the IRS seeks to recover the unpaid trust tax from a different, deeper pocket. Assessments against individuals for trust tax are not dischargeable in bankruptcy.
Tax professionals should be aware of the risks to their business clients, when advising whether the employer should take advantage of the payroll tax deferral for its employees. For the employer, rather than an enjoyable “holiday”, there could be serious consequences.
Yvonne R. Cort is a partner at the law firm of Capell, Barnett, Matalon & Schoenfeld, LLP. Her practice is focused on assisting businesses and individuals in resolving complex IRS and NYS tax issues including audits and collection matters. Yvonne is a frequent speaker for accounting and legal professional groups. She can be reached at firstname.lastname@example.org
Partner Gregory Matalon featured on The Business Journal’s Mass Mutual Business Owner’s Perspective Podcast
CBMS Partner Gregory Matalon was a guest on “The Business Journal’s Mass Mutual Business Owner’s Perspective Podcast” with Brian Bushlack. Many business owners don’t have a succession plan or estate plan in order. Without a plan, the business and business owner’s family may suffer. Click the link below to listen and learn more about the importance of planning.
On July 22, 2020, Capell Barnett Matalon & Schoenfeld LLP partner Yvonne Cort was quoted in Bloomberg Law regarding NYS Residency Issues, in an article entitled “New York’s Taxes Will Stalk You Even If You Fled During the Pandemic”. Click here for full article
In these days of working from home, many New York State resident taxpayers fortunate enough to have a vacation place are spending more time than ever before in their second home. There are also anecdotal reports of snowbird New Yorkers remaining south longer this year due to travel concerns. For some taxpayers, the question arises: why pay New York taxes when I’m living out of state? However, under NYS tax law, a resident taxpayer does not relinquish NYS residency simply by staying in another state. The taxpayer must meet NYS standards for changing domicile – and have the documentation to prove it if audited by New York State.
Let’s start with the basics. There are two ways for an individual to be taxed as a resident of New York: (1) when domiciled in New York; or (2) as a statutory resident of New York. A statutory resident is defined as an individual who is not domiciled in NYS, has a permanent place of abode in NYS and spends more than 183 days of the taxable year in NYS. Note that similar rules apply for determining New York City residency.
Many taxpayers who are domiciled in New York and spend vacations or winter in a second home erroneously believe that if they are out of New York for 6 months of the year, and make a few minor changes, such as obtaining a driver’s license in the new state, they will no longer be subject to tax as a NYS resident. They don’t realize that they may not have changed their domicile, and therefore the statutory resident test cannot be applied.
While a taxpayer may have multiple residences, there can be only one domicile. To change domicile, the taxpayer must have the intent to abandon the old domicile, and make the new place “home”, with all the feeling and sentiment associated with that word. The taxpayer can continue to maintain a residence in New York after changing domicile – but it won’t be “home”.
In considering a change of domicile, the State evaluates five primary factors: size, nature and use of the residence; active business involvement; time spent in each place; location of items near and dear; and family connections. The taxpayer must show, by clear and convincing evidence, that the ties to the new domicile out of New York are stronger and the connections to New York have become much weaker or been severed. While the State will place some value on minor factors such as obtaining a driver’s license or registering to vote, these do not carry as much weight as the primary factors.
Due to today’s COVID19 restrictions, taxpayers may have a better chance of demonstrating more time spent in the proposed new domicile than in the old place. It’s important to recognize that this is only one factor in showing a change of domicile, and no one factor is determinative. And if NYS starts an audit, often a year or two after the tax return is filed, the location where time was spent during the pandemic will be viewed in the context of prior and subsequent years. If the COVID19 time in the out-of-state residence is an outlier, and there have been no other changes, it may be difficult to show that the taxpayer’s home is no longer in New York.
To effectively prove a change of domicile, taxpayers should be mindful of New York State’s requirements and take steps contemporaneously to document all the supporting factors as much as possible. When New Yorkers are considering a change of domicile, they need to know that there’s more to be done than spending more time in their second home.
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 Yvonne Cort, Esq. at email@example.com
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.
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.
- 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.
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
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
In response to the 2020 Coronavirus pandemic, President Trump signed into law, a $2.2 trillion economic stimulus program called the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”). The Cares Act is designed to distribute money quickly to provide immediate financial relief to qualified individuals, small businesses, and other organizations. One of the most far-reaching sections of the Cares Act is the Paycheck Protection Program (“PPP”) which expands the economic relief the Small Business Administration (“SBA”) can offer and creates incentives to retain and pay employees during these uncertain and stressful times.
The Cares Act’s PPP commits $349 billion for – potentially forgivable – loans, by expanding loans provided by the SBA under Section 7(a) of the Small Business Act. PPP expands the recipients eligible for federally-backed loans, by including certain non-profit organizations as a qualified business. Small businesses, non-profit organizations, sole proprietorships, self-employed individuals, and independent contractors that meet the criteria and requirements of the program can apply for a loan through PPP. Specifically, a qualified non-profit organization is any entity: (a) exempt from federal income taxes undereither Section 501(c)(3) and 501(c)(19) (veteran organizations) of the Internal Revenue Code (“Code”), and (b) with fewer than 500 employees, including individuals employed on a full-time, part-time , or other basis . This article will solely focus on how PPP applies to non-profit organizations exempt from taxes under 501(c)(3) of the Code with fewer than 500 employees (“Non-profit Organization”), including certain religious and charitable organizations.
The SBA will guarantee 100% of the loans issued by qualified banks, credit unions and other lenders previously authorized to issue loans under Section 7(a) of the SBA or recently designated by the Treasury Department. Through the PPP, eligible recipients can receive a loan up to $10 million with a fixed interestrate of 0.5%. The loan amount is determined based on the Non-profit Organization’s payroll (as such term is defined below) and will be the lesser of: (a) 2.5 times the average monthly payroll costs incurred during the one year period before the date on which the loan is made (seasonal businesses and companies not in existence from February 15, 2019 to June 30, 2019, are treated differently), and (b) $10 million. The repayment of the loan (principal and interest) will be deferred for six (6) months, however, interest will continue to accrue over this period. No personal guarantee is required, no collateral is needed to be pledged to secure the loan, no administration fee will be charged (although participating lenders may charge a fee) and there will be no prepayment penalties. In addition, the loan is nonrecourse (the lender has no claim against any member of a Non-profit Organization for non-payment), except if the proceeds are used for prohibited or illegal uses.
A PPP loan must be used for the following expenses:
(a) payroll costs,
(b) interest on mortgage obligations (not including prepayment or the payment of principal) or other debt obligations existing prior to February 15, 2020,
(c) rent under an enforceable lease agreement executed prior to February 15, 2020, and
(d) utility payments for which services began prior to February 15, 2020 (collectively, “Eligible Operation Expenses”).
Specifically, “payroll” includes salaries, wages, commission, payroll support (paid vacation, sick, medical and family leave), group healthcare benefits (including insurance premiums), retirement benefits and the payment of state or local employment taxes. However, payroll expenses exclude: (a) salaries for individual employees in excess of $100,000 annually, (b) payroll taxes, railroad retirement taxes, and income taxes, (c) compensation for employees with a foreign principal residence, and (d) qualified wages for which a credit is permissible under another federal program (sick or family leave programs).
A Non-profit Organization can apply for a loan through PPP from any existing SBA lender, federally insured depository institution, federally insured credit union, Farm Credit System institution or from additional lenders authorized by the Department of Treasury, by submitting a loan application and the required supplemental documents. In evaluating a potential borrower, the lending institution will only consider whether the Non-profit Organization: (a) was in operation on March 1, 2020 and (b) paid salaries and payroll taxes during that time. An eligible Non-profit Organization must make a good faith certification to the lending institution stating that: (i) the requested loan is necessary to support operations during the adverse economic conditions resulting from the COVID-19 pandemic, (ii) the funds will be used to retain employees and maintain payroll and (iii) the Non-profit Organization has not and will not receive another loan through the PPP (only one loan is permitted) between February 15, 2020 and December 31, 2020.
If a Non-profit Organization receives a loan through PPP, it is eligible for forgiveness (cancellation) of the indebtedness based on the amount spent on the Eligible Operation Expenses. Due to the high demand, it is anticipated that the SBA will require that 75% of the forgiven indebtedness be used for payroll over the eight (8) week period commencing upon receipt of the loan (“Eight Week Period”). Forgiveness of the loan is not automatic. The Non-profit Organization will need to submit a loan forgiveness application to the servicing lender. The lender must make a decision on the forgiveness of the loan within sixty (60) days from receipt of the forgiveness application.
The loan may be forgiven up to the principal amount, but the forgiven amount may be reduced if: (a) the Non-profit Organization decreases the number of employees during the Eight Week Period. The loan forgiveness reduction is based on the following equation:
The average number of full-time employees per month for the Eight Week Period
The average number of full-time employees per month from February 15, 2019 to
June 30, 2019 or January 1, 2020 to February 29, 2020 (as such time period is
elected by the Non-profit Organization).
(b) there is a reduction in eligible employee compensation in excess of 25% of such compensation paid during the most recent full quarter period prior to origination of the loan, (c) any of the proceeds of the loan are not used for the Eligible Operation Expenses (in accordance with the required proportions), or (d) the Non-profit Organization does not provide the lender with adequate records evidencing the use of the funds; thus, it is crucial for Non-profit Organizations to keep track of the funds. It is important to note that if a Nonprofit Organization restores the reduction in employees and/or compensation by June 30, 2020, the forgiven indebtedness will not be decreased pursuant to (a) and (b) above.
Any portion of the loan that is not forgiven is subject to a two year maturity date and will continue to operate in accordance with the loan terms agreed upon by the Non-profit Organization and the lender. Last, the Cares Act provides that the forgiven debt under the PPP is excluded from gross income for purposes of the Code of 1986. Therefore, unlike other cancelled debt, the Non-profit Organization will not be required to pay income tax on the forgiven debt.
Non-profit Organizations and small businesses can apply for the SBA loans starting April 3, 2020, and independent contractors and self-employed individuals can apply starting April 10, 2020. The PPP will continue until June 30, 2020, however Non-profit Organizations should apply as soon as funds become available because there will likely be a high volume of applicants and there is a finite amount of funds allocated to the program.
Below are a few key resources to assist Non-Profit Organizations through the application process:
- Fact Sheet: https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf
- Sample Application: https://home.treasury.gov/system/files/136/Paycheck-ProtectionProgram-Application-3-30-2020-v3.pdf
- 100 Most Active SBA 7(a) Lenders: https://www.sba.gov/article/2020/mar/02/100-mostactive-sba-7a-lenders
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. 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. If your religious corporation or non-profit organizations requires assistance, please contact Jodi Warren, Esq., at Jwarren@cbmslaw.com or Renato Matos, Esq., at Rmatos@cbmslaw.com.
Christopher Wright’s article, “Can a Combined Zoning Lot Include a Partial Tax Lot?” was published in the New York Law Journal Volume 261 – No. 120, on June 24th, 2019.
Christopher serves as the primary zoning counsel for CBMS.