Category: News

At its meeting on April 8, 2020, the Financial Accounting Standards Board (FASB) decided to propose the following effective date deferrals due to the coronavirus pandemic:

Individual, Trusts, Estates, Corporations, and Others

Yesterday’s notice expands this relief to additional returns, tax payments and other actions. As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.

Estimated Tax Payments

The Federal Reserve made history on Thursday by moving aggressively to provide up to $2.3 trillion in liquidity commitments to support the economy. This policy intends to bolster households, small and medium-sized firms, and the ability of state and local governments to float debt to ensure critical services during the pandemic.

Like the Paycheck Protection Program, we anticipate that the Main Street program will experience greater-than-expected demand and will very likely be oversubscribed. Eligibility is based on firms with revenues of less than $2.5 billion in 2019, or firms with up to 10,000 employees. Each firm must be a business that is created or organized in the United States with significant operations and a majority of its employees in the U.S.

Loan terms are a four-year maturity at an adjustable rate of SOFR plus 250-400 basis points with the minimum size of $1 million. Amortization of principal and interest will be deferred for one year. The maximum size will be the lesser of $25 million or an amount that, when added to the borrower’s existing and committed but undrawn debt, does not exceed four times the borrower’s 2019 EBITDA. Prepayment will be permitted without penalty.

The facility does contain some loose conditionality around efforts to maintain payroll and retain its employees during the term of the loan, as well as not cancel or reduce any existing lines of credit to the eligible lender or any other lender. In addition, loans obtained through the facility will not be used to repay or refinance pre-existing loan balances.

Here’s a picture of how it is intended to work

For additional information about the Main Street Lending Progrom, refer to the RSM article, Fed introduces Main Street Lending Program.

Please contact your HSC advisor, or Scott Touro, MBA at stouro@hsccpa.com with any questions you may have.

The current market situation is an example of why financial planning (with a keen eye toward tax outcomes) is the cornerstone of investment decisions, retirement planning, business transitions, insurance choices, etc.  A drop in the market provides plenty of planning opportunities to consider.

1. Roth conversions – Convert Traditional IRA accounts to Roth IRAs to maximize future tax-free growth and income distributions as the market recovers.
2. Increase plan contributions – Increase current 401k/403b contributions to “buy low” when the market is down and increase tax-deferred growth potential.
3. 529 Plans – For the same reasons above, consider “max funding” or taking advantage of the 5 year “bunching” rule for gifts to 529 Plans.
4. RMD’s – Stop or delay – Delay taking required minimum distributions until later in the year to allow accounts to recover (or don’t take them at all for 2020 if you don’t need to).
5. Roth deferrals – Consider switching traditional 401k/403b deferrals to Roth deferrals if household income this year will be lower this year.
6. Tax loss harvesting – Tax loss harvest to generate capital losses that can be used to offset capital gains now and in the future.
7. Estate and asset protection planning – Consider several strategies for asset protection and estate tax planning.
   • Consider gifts to irrevocable trusts using assets that have reduced in value. Consider creating a Spousal Lifetime Access Trust (SLAT) that allows your spouse to control and receive income from the assets in the trust.
   • In addition to, or alternatively, sell depressed assets to the trust in return for a promissory note using current low applicable federal rates.
   • If you have grantor trusts in place (e.g. Intentionally Defective Grantor Trusts), consider swapping assets that have a currently depressed value for assets inside the trust that may be holding their values. This allows currently depressed assets to recover in value outside of your estate.
   • Create and fund Grantor Retained Annuity Trusts (GRATs).  These trusts rely on the appreciation on the assets beating the growth based on current applicable federal rates GRATs work best as estate planning vehicles when interest rates are low and with assets that are likely to appreciate significantly over time.
8. Invest some excess cash – Begin dollar cost averaging cash that is earmarked for long-term investment.
9. Re-balancing – Now and going forward, awareness to portfolio re-balancing frequency to maintain appropriate allocations.
10. Refinance – Consider refinancing your mortgage and intra-family loans – interest rates are fluctuating quickly, but may be worth looking into.

The ideas above may or may not be applicable to your personal situation and should be discussed with your advisors prior to implementation. Please contact your HSC advisor, HKFS financial planning consultant, Kathy Ettensohn, CPA kettensohn@hsccpa.com, or Scott Olinger, CPA, CGMA  solinger@hsccpa.com with any questions you may have.

U.S. Small Business Administration (SBA) issued an interim final rule with additional guidance regarding the application of certain affiliate rules applicable to SBA’s implementation of the “size rules” of the Act and requests public comment.  The new guidance effectively reiterates the “control” standards previously communicated including, but not limited to:

• A holder of more than 50% of an applicant’s voting securities de facto “controls” the applicant;
• A minority holder (a holder of less than 50% of an applicant’s voting securities, but in any amount), will be deemed an affiliate if that minority holder can “control” the applicant (by charter, bylaws or stockholder agreement) by preventing a quorum or otherwise blocking actions by the board or stockholders:

If “control” is found between an applicant and another company, all of the applicant’s employees – and employees of all the applicant’s affiliates (including portfolio companies of private equity holders) will be aggregated with the applicant’s employee count in determining eligibility.

More information can be found at the US Treasury PPP Assistance Page.

The U.S. Small Business Administration on Thursday issued an interim final rule (yes. . . that is right, an interim final rule. . .) for the Paycheck Protection Program (PPP), which is offering $349 billion in forgivable loans that small businesses impacted by the Coronavirus pandemic can use to cover costs including payroll and rent.

In addition, early this morning they have issued a NEW application form –  PPP – Final (hopefully) Borrower Application Form.  It is not clear if the SBA will accept the previously issued forms or not.  Therefore, we recommend that you consider completing the new form (unless your banker has instructed you otherwise).

Due to the quickly evolving nature of this situation, and the differing approaches certain banks are taking, we recommend that you stay in close contact with your banker in case anything else changes.  At this point, they are your best source of timely information. (I do feel compelled to say that they are in a difficult situation working through this void in guidance from the SBA and Treasury, so grace is likely warranted).

• Average Monthly Payroll Calculation — For most companies this will be calculated on the average monthly payroll of 2019. If your company is extremely seasonal you may elect to use the average payroll between 2/15/2019 and 6/30/2019.  (The guidance is still silent on Trailing 12 versus 2019 pay – stay in close contact with your banker on this.  . . many are calculating and preparing for both scenarios.)
• Loan interest rate has changed to 1%.
• Term of loan has changed to 2 years with payment deferral for 6 months.
• It appears that the other operating factors such as mortgage interest, rent and utilities could make up to, but not more than, 25% of the loan amount repaid by the government.