Authored by Paul Dillon, Michelle Hobbs and Michael Wronsky On Aug. 8, 2020, the president declared a payroll tax holiday via a presidential memorandum. The memorandum directs the Department of Treasury (Treasury) to exercise its authority to temporarily suspend the withholding, deposit and payment of some employees’ share of the payroll tax. The suspension is effective for taxes due on wages paid between Sept. 1, 2020, and Dec. 31, 2020.  Critical details surrounding the holiday remain outstanding, and guidance from Treasury is needed. However, in the interim, this tax alert highlights the minimal information available and the significant questions and issues that must be addressed.  This payroll tax holiday is essentially a loan that will need to be repaid (likely through additional withholdings from employee paychecks in 2021), unless Congress acts. It is not a full relief of the payroll tax as was enacted in 2009 following the financial crisis. To date, neither chamber of Congress seems inclined to enact similar legislation. Accordingly, we strongly recommend against acting to utilize this deferral in the absence of guidance and clarification from Treasury.  Key takeaways Employer participation is optional. Treasury Secretary Steven Mnuchin informally remarked on Aug. 12 that employers would not be required to suspend withholding from employee salaries and can continue to withhold and remit payroll taxes as usual. It is unclear whether employers will have the authority to allow individual employees to opt in or out of any payroll tax holiday. Not all employees qualify. The memorandum provides the deferral for employees whose wages or compensation “payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis,” which equates to a $104,000 annual pre-tax salary. Employers must continue to withhold for employees earning above this threshold.  The taxes are still owed. The memorandum strictly defers payment; the payroll taxes must be paid after Jan. 1, 2021. This could create hardships for employers in ensuring they can sufficiently withhold in the next year. Further, repayment of four months’ worth of deferred taxes could create significant economic hardships for lower-income taxpayers, materially reducing or eliminating paychecks likely beginning in January (depending on the employee’s compensation level and amount deferred). Outright forgiveness of these liabilities would require action by Congress, but a payroll tax holiday has been spurned by lawmakers on both sides of the aisle during recent economic stimulus negotiations. Program creates potential compliance issues. It is unclear whether an employer would still be responsible for remitting an employee’s deferred taxes in the event the employee leaves employment before they become due. Further, if that employee takes a new job, their new employer may not have the necessary documentation or information to determine whether the employee is still eligible for deferral.  Memorandum constitutionality is questionable. It does not appear that the president has the authority under Article I, Section 8 of the Constitution to defer, implement or set tax rates. In addition, existing IRS regulations appear to prohibit any deferral of payroll taxes, which may preclude Treasury from unilaterally allowing a payroll tax holiday.  We anticipate Treasury will release guidance on the presidential memorandum prior to or shortly after the Sept. 1, 2020, effective date. In the meantime, expect this to be an evolving issue and look for additional updates from Baker Tilly as warranted. Please contact your Baker Tilly tax advisor with questions on how the above affects your tax situation. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

A presidential memorandum declaring a payroll tax holiday is raising many questions, including if it’s even constitutional, but if it is, employers could stop withholding employee payroll taxes starting Sept. 1, 2020. 

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Authored by Timothy Kosiek and Christopher DeMarco The small business owner's guide to the CARES Act For borrowers with a straightforward PPP loan compliance environment, we have developed a self-service, Excel-based loan forgiveness calculator. But if your situation is more complex, or you have limited staffing available to support the loan requirements, we can provide an automated approach to forecasting eligible spend, monitoring specific payroll exceptions, and managing compliance with final documentation requirements.
Business owners have been strongly affected by COVID-19 and are left with many questions. The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress are intended to assist them in overcoming the current challenges. Baker Tilly developed the below FAQs to guide business owners as well as certain not-for-profits and other employers during this uncertain time.  NOTICE: Baker Tilly is providing updated information as it becomes available. Due to the nature of the emerging and rapidly evolving information from government and non-government relief programs, some requirements and offerings may change before they are listed here. Please consult with your loan officer for the most current details. Paycheck Protection Program (PPP) loans The program provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans are forgiven up to the full principal amount of qualifying loans guaranteed under the PPP, which would help your workers remain employed, as well as help your small businesses and our economy to snap back quicker after the crisis.  PPP has a host of attractive features, such as forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between Feb. 15, 2020, and June 30, 2020. This program would be retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls.  View the PPP application Expand the section(s) below to view the FAQ.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Coronavirus Aid, Relief, and Economic Security Act – Baker Tilly specialists answer all your questions.

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Authored by Laura Rash Through the passing of various legislative actions, billions in federal funds have been provided to individuals, schools, businesses, healthcare entities, state and local governments and not-for-profit organizations. More than 20 new federal programs were created to provide funding relating to the pandemic and hundreds of federal programs were expanded to provide additional grant-related funding to address the impacts of COVID-19. It is imperative that organizations identify all federal funding received relating to COVID-19. Once all funding is identified, management needs to investigate the funds to determine if they are subject to the Uniform Guidance requirements. Although non-authoritative, the Government Audit Quality Center (GAQC) of the American Institute of Certified Public Accountants (AICPA) is compiling a “real-time” summary of all federal funding sources. The summary includes a description of the funds by federal agency, an indication if they are subject to the Uniform Guidance and links to various supporting documentation surrounding each funding source. This is a valuable and free resource for organizations to utilize when summarizing funds and determining their applicability to the Uniform Guidance. Any amounts subject to the Uniform Guidance are required to be reported separately on the Schedule of Expenditures of Federal Awards (SEFA) to clearly indicate they are funds relating to COVID-19 (for example, on a separate row by CFDA number with “COVID-19” reference). Confusion surrounding compliance requirements In many situations, COVID-19 funding was disbursed without clear directive of the requirements associated with the funding. In addition, the annual release of the federal compliance supplement has been delayed, leaving additional confusion surrounding compliance requirements. The delay has left many organizations scrambling to identify and understand the requirements for the use of the federal awards. The 2020 federal compliance supplement (which is applicable for fiscal year-ends June 30, 2020 and beyond) is expected to be released on Aug. 17, 2020, and should shed some light on the compliance requirements for COVID-19 funding. However, the Office of Management and Budget (OMB) has communicated that an addendum will be released sometime in the fall that covers specific compliance requirements related to COVID-19. Unless a waiver is provided by the federal agency, organizations will be expected to be in compliance with the requirements outlined in the 2020 federal compliance supplement addendum relating to COVID-19 funding. The timing of the release of the federal compliance supplement addendum could also lead to delays in the ability for organizations to finalize their Uniform Guidance audit. What should organizations do now? Due to the significant delays at the federal level, organizations are encouraged to:  Review the documentation provided by federal sources for the COVID-19 award amounts received Review the information that is available through the GAQC by federal funding source to fully understand the award and known requirements  Consider reaching out to the federal funding agency directly, where appropriate, to obtain any additional clarification necessary to ensure compliance with federal requirements related to COVID-19 funding For more information on this topic, or to learn how Baker Tilly not-for-profit specialists can help, contact our team.

Organizations that received federal funding relating to COVID-19 need determine if they are subject to the Uniform Guidance requirements.

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Authored by Larry Mohr and Shelby Netz Title IV of the Coronavirus Aid, Relief and Economic Security (CARES) Act enacted on March 27, 2020, included a subtitle provision called the Coronavirus Economic Stabilization Act of 2020, which provides additional emergency relief to certain businesses that may not have been eligible for other funding under the CARES Act.  Shortly thereafter, the Federal Reserve announced the establishment of the Main Street Lending Program (the Program) to help facilitate roughly $600 billion in financing to small and midsize businesses in relation to Title IV. The Federal Reserve subsequently released term sheets about the programs, which defined criteria and restrictions for eligible lenders and eligible borrowers.  At the time, an eligible borrower did not include not-for-profit (NFP) organizations. On June 15, 2020, the Federal Reserve Board released a proposal to expand the Program to provide credit to small and midsize eligible NFP organizations. The week-long comment period provide feedback on the proposed loan terms and conditions Finally on July 17, 2020, the Federal Reserve modified the Program to include not-for-profit organizations exempt under sections 501(c)(3) and 501(c)(19) to provide these organizations with greater access to credit.  Baker Tilly’s specialists compiled a list of frequently asked questions to help guide you through the provisions for NFP organizations to determine potential eligibility for your organization. What are the available programs under the proposed Program for NFP organizations? The Program’s NFP loans will be made available under two facilities: the Nonprofit Organization New Loan Facility (NONLF) and the Nonprofit Organization Expanded Loan Facility (NOELF). The NONLF will allow eligible lenders to originate loans for eligible NFP organizations, and the NOELF will allow for additional credit on loans previously entered into by eligible NFP organizations via an upsized tranche. Eligible NFP organizations should have been in “sound financial condition before the coronavirus pandemic.” What type of NFP organizations would be eligible for the Program? Only NFP organizations described in sections 501(c)(3) and 501(c)(19) of the Internal Revenue Code are considered eligible organizations under the Program. The Federal Reserve may open up the Program to other types of NFP organizations at a later date.  When is the Program expected to be available for NFP organizations? Forms and agreements have now been modified to reflect the expansion of the Program to not-for-profit organizations, but the Program is still not accepting the submission of loans under either not-for-profit program. We will stay on top of updates and feature another alert once these forms and agreements are revised and are available.   If I applied for or received a loan under the Paycheck Protection Program (PPP), can I apply for a loan through the Program? Yes. NFP organizations that received PPP loans are permitted to borrow under the Program, provided they meet the eligible borrower criteria as outlined below.  Is the loan eligible for debt forgiveness? At this point, any loan under the Program will not be eligible for partial or full forgiveness.  What are the features of an eligible loan under the Program?  What criteria does an eligible borrower NFP organization need to meet? An eligible borrower is an NFP organization that:  has been in continuous operation since, Jan. 1, 2015;  Is not an Ineligible Business as listed in 13 CFR 120.110(b)-(j) and (m)-(s), as modified by regulations implementing the PPP (see next FAQ for a more defined description); meets at least one of the following two conditions: (i) has 15,000 employees or fewer, or (ii) had 2019 annual revenues of $5 billion or less;  has at least 10 employees;  has an endowment of less than $3 billion;  has total non-donation revenues (gross revenues minus donations) equal to or greater than 60% of expenses(4) for the period from 2017 through 2019(5) has a ratio of adjusted 2019 earnings before interest, depreciation, and amortization (EBIDA) to unrestricted 2019 operating revenue,(6) greater than or equal to 2%;  has a ratio (expressed as a number of days) of (i) liquid assets(7) at the time of loan origination or origination of the upsized tranche to (ii) average daily expenses over the previous year, equal to or greater than 60 days; at the time of loan origination or origination of the upsized tranche, has a ratio of (i) unrestricted cash and investments to (ii) existing outstanding and undrawn available debt, plus the amount of any loan under the applicable Facility, plus the amount of any Center for Medicare & Medicaid Services accelerated and Advance Payments, that is greater than 55%; is created or organized in the United States or under the laws of the United States with significant operations in and a majority of its employees based in the United States; does not also participate in any of the other facilities available under the Program, the Primary Market Corporate Credit Facility,(8) or the Municipal Liquidity Facility(9); and has not received specific support pursuant to the Coronavirus Economic Stabilization Act of 2020 (Subtitle A(10) of Title IV of the CARES Act). What is an Ineligible Business under 13 CFR 120.110(b)-(j) and (m)-(s)? An Ineligible Business includes: financial businesses primarily engaged in the business of lending; passive businesses owned by developers and landlords that do not actively use or occupy the assets acquired or improved with the loan proceeds; life insurance companies; businesses located in a foreign country; private clubs and businesses which limit the number of memberships for reasons other than capacity; government-owned entities (except for businesses owned or controlled by a Native American tribe); and loan packagers earning more than one third of their gross annual revenue from packaging SBA loans. See the SBA website for the full list of ineligible businesses.   What certifications and covenants will an eligible borrower need to make under the Program? Will make reasonable efforts to maintain its payroll and retain its employees during the time the loan under the Program is outstanding Will not repay the principal balance or interest on any debt until the loan or upsized tranche of the eligible loan under the Program is repaid in full, unless the debt or interest payment is mandatory or due Commit that it will not seek to cancel or reduce any of its committed lines of credit with the eligible lender or any other lender Certify it has a reasonable basis to believe that, as of the date of origination or upsizing of the eligible loan, that it has the ability to meet its financial obligations for at least the next 90 days and does not expect to file for bankruptcy during that time period Will not repurchase an equity security that is listed on a national securities exchange of the eligible borrower (or its parent company) within 12 months after the eligible loan is repaid. Refer to H.R. 748-192, Sec. 4003(c)(3)(A)(ii)(I). Will not pay dividends or make other capital distributions with respect to the common stock of the eligible borrower within 12 months after the eligible loan is repaid.  Refer to H.R. 748-192, Sec. 4003(c)(3)(A)(ii)(II) During the 12-month period beginning on the date the loan agreement is executed:
-No officer or employee(11) of the eligible borrower whose total compensation(12) exceeded $425,000 in calendar year 2019 will receive total compensation greater than the amount received in 2019 (refer to H.R. 748-192, Sec. 4004(a)(1)(A)); or
-No officer or employee of the eligible borrower will receive severance pay or other benefits upon termination of employment that exceeds twice the compensation received in 2019 (refer to H.R. 748-192, Sec. 4004(a)(1)(B)); and
-No officer or employee of the eligible borrower whose total compensation exceeded $3 million in calendar year 2019 may receive greater than $3 million plus 50% of the excess over $3 million received in calendar year 2019. Refer to H.R. 748-192, Sec. 4004(a)(2). What is the period of time the loans will be available? All facilities under the Program have been extended  to December 31, 2020. For more information on this topic or to learn how Baker Tilly specialists can help, contact our team. 

On July 17, 2020, the Federal Reserve Board confirmed that the Main Street Lending Program will be expanded to provide credit to small and midsize eligible not-for-profit (NFP) organizations. A comprehensive FAQ for not-for-profit organizations was released and subsequently updated on August 6, 2020. 

Main Street Lending Program officially expands to include not-for-profit organizations exempt under sections 501(c)(3) and 501(c)(19)

While the vast majority of not-for-profit (NFP) organizations responding to a Baker Tilly survey noted that the coronavirus (COVID-19) pandemic has had a major impact on their operations, the reasons why are as varied as their missions. Somewhat surprisingly, a significant minority of NFPs noted upsides to the pandemic that may benefit their organizations in the long run. In the survey of 100 NFP organizations, 73% of them reported that the pandemic negatively affected their organizations, and, in fact, more than half (55%) said it had a “major impact” on operations. Respondents’ top pandemic-related issues were: Switching to remote work Suspending programs Declining investment portfolios Furloughing staff Ellen Labita, healthcare and NFP partner at Baker Tilly, said the extent of the pandemic’s effect generally correlated to the NFP’s mission.  Since most human service agencies, for example, are considered essential, they continued to operate. Many incurred significant additional costs, however, because they had to reinvent their program delivery models. These costs included creating virtual program settings, buying personal protective equipment and incurring increased program-specific costs, such as relocating homeless shelter clients to hotel rooms. Some or all of these extra costs may be reimbursed by the government and other funders. On the other hand, Labita noted that some NFPs, including many museums and performing arts groups, for example, closed completely, curtailing revenues they rely on from admissions, ticket sales and gift store purchases. Some have responded with online offerings to continue programming. With social distancing practices expected to be enforced indefinitely, these types of entities are having to rethink their path forward since for some that will mean severely limiting their crowd size and for others staying closed until the pandemic is over. NFPs that rely on special events have had to cancel or postpone in-person events. Some have forged ahead by hosting successful virtual events.  Paycheck Protection Program assistance More than 70% of respondents said their organization took advantage of the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The PPP provides cash-flow assistance through 100% federally guaranteed loans to qualified small businesses, including NFPs. One of the key attractions for a PPP loan is that recipients can apply for forgiveness of the loans if certain conditions are met. Labita said NFPs awarded PPP loans must keep meticulous records for expenditures of the loan proceeds, especially the amount spent on expenses qualifying for forgiveness (generally salaries and benefits, mortgages, rent, utilities) and the time period during which the PPP funds were spent. The SBA has revised PPP regulations and guidance several times since the program started in March, and being able to demonstrate compliant use for loan forgiveness and possible audit is essential. Positive pandemic effect The overall negative effect of the pandemic is not a surprise, but the 8% of respondents that said it had a positive impact. “Some NFPs embraced being forced to create different ways to deliver services,” Labita said. “They may retain some of these platforms and find they might be more efficient as time goes on.”  For example, some human services organizations have realized the value in having virtual meetings among team members as well as with certain clients for services like tele-therapy, job training sessions or education programs. The calls eliminate travel time and safety concerns.  Often, though, technology can be an obstacle, either on the side of the organization or the client. For NFPs, the pandemic has justified investing in better technology, which is an area where NFPs typically lag behind their for-profit counterparts.  If they haven’t already, NFPs may need to update technology, since, as Labita said, “it looks like organizations may not be bringing all their people back on site quickly because of the need for social distancing,” and they may continue offering services virtually in the long term.  Longer-term effect Labita said it is hard to determine at this point the longer-term effect of the pandemic. As we emerge from the pandemic, governments and other funders may re-prioritize how they distribute available funding, and the overall pool of funds is likely to shrink. NFPs will likely need to find new sources of private funding and continue to focus on reducing costs, especially by expanding their use of technology to simplify processes and deliver efficient programming.   Fundraising will be a challenge due to limitations on in-person interactions. NFPs will have to find other ways to remind donors the importance of their missions with the goal of sustaining existing support and increasing new sources for contributions. For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

In a recent Baker Tilly survey of not-for-profit organizations, somewhat surprisingly, a significant minority noted upsides to the pandemic that may benefit their organizations in the long run. 

Some NFPs see glimmer of hope in disruption caused by pandemic: survey

Many not-for-profit (NFP) organizations have experienced significant declines in revenues due to program closures and decreased contributions, which presents significant financial challenges in financial reporting. In our prior article, we discussed the step-by-step process that not-for-profit management teams should follow to evaluate whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern. Baker Tilly’s going concern template is designed to help NFP organizations assist in the documentation of their assessment.
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

Download our going concern template for not-for-profit organizations to assist in the documentation of their assessment.

Financial Statement Audit

Going concern assessment tool for not-for-profit organizations

WEBINAR THREE OF A THREE-PART SERIES
COVID-19 response and recovery: A webinar series for not-for-profits Video Not-for-profit organizations experienced first-hand the troubling effects of COVID-19 on communities. While the pandemic created opportunities for some organizations, nearly all not-for-profits report negative impacts that impede their ability to fulfill their mission, according to a recent Baker Tilly client survey.  Watch the on-demand recording to hear our not-for-profit peer panel discuss the impacts, lessons learned and success stories in dealing with COVID-19, including:  mission disruption, staffing and workforce deployment issues, opportunities for and challenges with relief funding assistance and re-opening plans.  Key learning objectives After viewing this webinar, participants will be able to: Describe leading practices for managing a workforce, maintaining and pivoting critical mission efforts and keeping funders and granters informed appropriately Summarize relief funding assistance programs available and innovative ways to manage governance and compliance Discuss plan approaches for re-opening and business lessons learned This webinar is intended for CEOs, CFOs, controllers, not-for-profit board members and other key members of management (operations, development, programs). For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

In this on-demand webinar, not-for-profit organizations discuss the impacts, lessons learned and success stories in dealing with COVID-19, including:  mission disruption, staffing and workforce deployment issues, opportunities for and challenges with relief funding assistance and re-opening plans.

Not-for-profit panel: leading practices from COVID-19

WEBINAR TWO OF A THREE-PART SERIES
COVID-19 response and recovery: A webinar series for not-for-profits Video The recent legislation passed by Congress as a response to the COVID-19 pandemic has created many opportunities for not-for-profit organizations, but has also caused a new administrative burden to stay in compliance with the new programs’ rules and regulations. This on-demand webinar discusses key tax and accounting considerations impacting your not-for-profit during the recovery phase and beyond, helping you to plan now, for tomorrow. Key learning objectives After attending this webinar, participants will be able to: Describe Paycheck Protection Program (PPP) forgiveness guidance and loan accounting considerations Summarize insights provided by our specialists regarding common operational issues and the impact on year-end financial results and performance reporting Discuss other tax and accounting trends and hot topics This webinar is intended for: CEOs, CFOs, controllers and COOs.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

This on-demand webinar discusses key tax and accounting considerations impacting not-for-profit organizations during the pandemic recovery phase and beyond.

Navigating the changing landscape – a financial perspective

To aid in your understanding and analysis of financial assistance and aid programs available to you or your business, Baker Tilly is maintaining a guide that outlines the COVID-19 stimulus package including CARES Act, Coronavirus Preparedness and Response Supplemental Appropriations Act, Families First Coronavirus Response Act, as well as state and local financial assistance programs.  Access the guide for an overview of COVID-19 federal, state and local financial assistance and aid programs, key deadlines and up-to-date information as programs evolve. Both documents are updated frequently. Refer back to this insight page for the latest information.  Last update on June 19, 2020 at 5:00 pm CST.

For more COVID-19-related insights, visit Baker Tilly’s Coronavirus Resource Center. For questions related to COVID-19 federal aid and financial assistance programs, contact our COVID-19 support team. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Access Baker Tilly’s up-to-date guide for a summary of the COVID-19 stimulus package and to aid in your understanding and analysis of federal, state and local financial assistance programs available to your business. 

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COVID-19 Stimulus Guide: federal, state and local financial assistance programs

WEBINAR ONE OF A THREE-PART SERIES
COVID-19 response and recovery: A webinar series for not-for-profits Video While continuing to protect your organization and employees, not-for-profits should view this time as an opportunity for evolution. It is important to review the strategy, operations, procedures and policies put in place to manage the health and wellness of your organization and workforce during the COVID-19 pandemic. In this on-demand webinar, we discuss key considerations in running your not-for-profit during the recovery phase and beyond, helping you to plan for the future and a new normal. You will learn about the following to help get your organization back on track now, and protect it in the future: A recovery framework and the key dimensions of your not-for-profit organization to consider Challenges and opportunities facing organizations during recovery Growth strategies you can use as we enter the new normal, including strategic scenario planning Insights on re-opening strategies, protection and COVID-19 provisions Leading practices for supporting your employees, while listening to their concerns and working to resolve workforce issues Key provisions regarding the Families First Coronavirus Response Act (FFCRA) A growth plan for what work and work-life balance will be like for your employees in this new environment This on-demand webinar is intended for CFOs, CEOs, COOs, HR directors/managers and payroll managers.
To view the next webinar in this series, click here. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

In this on-demand webinar, we discuss key considerations in managing the health and wellness of your not-for-profit organization and workforce during the COVID-19 pandemic.

Employee Management

Protecting your organization and your employees as the U.S. economy reopens

Not-for-profit board members commit their resources, experience and time to ensure the organization’s mission is well defined and executed, all with the goal of managing risk and supporting growth. However, even the most experienced and efficient boards have not been exposed to an environment like the one we are faced with today. It is critical for board members to understand their vital role during this crisis, to properly distinguish between the role of the board and the role of management and to trust the assignment of roles and responsibilities.  A board’s role evolves with the cycle of the organization as it responds to disruptive events such as the COVID-19 pandemic. A board must help guide an organization to prepare for response and recovery, as well as an adjustment to the new normal. Important decisions need to be made to determine the allocation of resources, changes to operations and evaluation of the expected impact to program outcomes.  Steps for boards to take now Boards should consider the following in order to thoughtfully reflect on and respond to current events, and prepare for recovery.  Emergency response and crisis management: How will the board monitor the situation? Is a taskforce or committee needed to oversee progress and impact? When will the work of the taskforce be complete? How will success be measured?  What can the board do to best support the management team in responding to this crisis?  What is the organization’s current risk profile and how is risk being managed? Consider impacts to health and safety, services, personnel (including volunteers), compliance, financial stability, information security, stakeholder and public relations and mission. How does the organization best communicate with stakeholders regarding the current situation and what steps are needed to mitigate the impacts and comply with relevant regulations?  Is independent or expert advice needed to help the organization navigate this situation?  Business continuity and recovery: Assess the comprehensive impact of the crisis on the organization under multiple scenarios.  Determine stress points on the organization and identify where resources may become ‘tapped out’ for recovery efforts or ongoing implementation of mission and strategy. Consider how to evaluate, implement and manage the plan to move toward normal operations. Is there a short-term continuity plan in place if the CEO or other members of management are unable to perform their duties?  A leading practice is to formalize a business continuity planning process to provide the transparency necessary for both the board and management to make sound and appropriate judgments regarding the level of risk to the organization.  For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

In this article, learn about emergency response and business continuity not-for-profit boards should consider in order to reflect on and respond to current COVID-19 events, and prepare for recovery.

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Board business during the COVID-19 pandemic

Authored by Paul Dillon, Michelle Hobbs and Michael Wronsky The Small Business Administration (SBA) released two new interim final rules on the Paycheck Protection Program (PPP). One set covers the requirements for loan forgiveness, confirming and expanding upon the previously released loan forgiveness form and instructions (please see our previous tax alert); the other addresses the SBA’s procedures for reviewing applications for loans and loan forgiveness. Key takeaways from both sets of rules are below. The guidance is effective immediately.  Separately, the House and Senate introduced bipartisan bills to amend the PPP. Both bills propose to expand the covered periods in which borrowers can use loan proceeds and qualify for forgiveness, and remove the limit on the amount of non-payroll costs that can be forgiven. The Senate bill would also allow expenses funded with forgiven loan proceeds to be deductible, overriding Notice 2020-32 previously issued by the IRS. While numerous members of the House indicated support for such a provision, the House bill does not include a similar provision. The House is expected to vote on its bill this week, but timing for the Senate is less certain at this time.  Key takeaways Requirements for loan forgiveness Cash compensation eligible for forgiveness is generally limited to $15,385 per employee over the eight-week covered period in 2020 ($100,000 limit multiplied by (eight-week covered period divided by 52-week year)), however, the interim rule imposes an additional limit on “owner-employees,” being the lesser of $15,385, or 8/52 of 2019 compensation in total, across all businesses. The “across all business” requirement may come as a surprise to many and may serve to further limit the amount of owner compensation eligible for forgiveness.

Unfortunately, the term “owner-employees” is not defined for this purpose. It presumably includes S corporation shareholders in accordance with general tax principles. This additional limitation could render substantial amounts paid by borrowers under previous guidance no longer eligible for forgiveness. It is also unknown whether attribution rules will apply to pull in related-party salaries into a single limitation. Consider a family business taxed as an S corporation. If the business has a sole equity shareholder whose family members are salaried employees, it is unclear whether attribution rules would apply and additionally limit the forgiveness of the amounts paid to the family members. The rules include new limitations on health insurance for owners. In general, noncash compensation paid to employees, such as retirement and healthcare contributions made on their behalf, is additionally eligible for forgiveness, and these amounts do not count toward the above-mentioned limit on cash compensation. 

The interim rule provides these additional amounts cannot increase the compensation cap described above for amounts paid for self-employed individuals, including Schedule C filers and general partners.

However, the interim rule does not discuss S corporation owner-employees for this purpose. It is unclear whether this exclusion reflects a policy position or a drafting error. Bonuses and hazard pay as well as salaries, wages and commission payments to furloughed employees during the covered period are eligible for loan forgiveness, subject to the $100,000 limit prorated for the covered period.  A full-time equivalent (FTE) employee is defined as one who works 40 hours or more on average each week. The rule provides the methodology for calculating FTEs by dividing the average number of hours paid for each employee per week by 40 and capping the result at 1.0. This echoes the guidance included in the loan forgiveness application. For part-time employees, employers have the choice of computing FTEs by average actual hours during the covered period or they can use a default FTE of 0.5 for each part-time employee regardless of actual hours worked.  Prepayments of eligible costs other than mortgage interest are eligible for forgiveness.  The guidance also addressed documentation requirements for employers regarding reduced headcounts if they attempt to rehire the same employee but the employee rejects the offer. Specifically, in calculating the loan forgiveness amount, a borrower may exclude any reduction in FTE employee headcount that is attributable to an individual employee if:
i. The borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
ii. The offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
iii. The offer was rejected by such employee;
iv. The borrower has maintained records documenting the offer and its rejection; and
v. The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer. Loan application review procedures Borrowers are responsible for the accuracy of the PPP forgiveness calculation as well as the supporting loan forgiveness application and documentation. The SBA may review PPP loans of any size and at any time. Specifically whether: 
– The borrower was eligible for the loan, based on the Coronavirus Aid, Relief, and Economic Security (CARES) Act and guidance available at the time the loan was applied for, 
– The loan amount was calculated correctly,
– The loan proceeds were used for eligible costs, and
– The borrower is eligible for the amount of loan forgiveness applied for. Borrowers will have the opportunity to respond to questions posed by the SBA and/or the lender during the loan review process. Lenders must approve or deny an application for loan forgiveness within 60 days of submission. Borrowers will have an opportunity to appeal a denial of PPP loan forgiveness under soon-to-be-issued guidance. Borrowers must retain documentation supporting the PPP loan and corresponding forgiveness for six years after the loan is forgiven or repaid in full. Please reach out to your Baker Tilly tax advisor to discuss how these potential changes may affect your tax situation.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

The SBA issued two new interim final rules for Paycheck Protection Program (PPP) – one set covers loan forgiveness requirements and the other looks at the SBA’s procedures for reviewing applications for loans and loan forgiveness. Read about key takeaways from both sets of rules.

Municipal Advisory

SBA issues final interim rules providing PPP guidance

The COVID-19 pandemic has forced businesses of all sizes to navigate new ways of doing business on top of dealing with immediately pressing cash flow concerns. This rapid shift in priorities has left many organizations more vulnerable to certain risks. In Baker Tilly’s webinar, Crisis, continuity and recovery: a real-time enterprise risk workshop, our specialists discuss how organizations can identify and mitigate risks in real time with special attention to cybersecurity and fraud risks. While the immediate fallout from COVID-19 is beginning to level out as organizations and employees settle into the new normal and aid is being made available by the U.S. government, the risks associated with the situation are still very much ongoing. The first step to mitigating any risk is identifying it, which is where enterprise risk management (ERM) can help. ERM is concerned with how you manage your business’s risk every day – not just during a downturn – and making that process more transparent to your leaders by formalizing it. During a downturn, it can certainly be difficult to focus on more than the negatives of the situation, but some organizations are discovering opportunity (the upside of risk). ERM can help you identify both.  While each organization’s ERM program is going to be different, the basic structure should consider the following process:  Identify and assess: Identify your key risks and assess the likelihood and impact level of each risk; consider 10-15 risks to focus on proactively with your board and leadership; and identify who will be responsible for managing each risk Respond: What action will be taken? Will you mitigate risks via internal controls, share risk with a third party (e.g. insurance), or exit that risk all together?  Monitor: Monitor your organization, industry and environment to determine how the risk landscape is changing and whether your responses are effective Improve: Identify if the mitigation process is still in place and working, and if the people in charge of mitigating each risk are still the right ones to be doing so.  Broadly speaking, it’s important to note that having your risks defined and processes in place allow you to pivot your strategy quickly to adapt to new situations. No one can predict the future, but organizations can – and should – plan for high-impact possibilities. It may seem advisable to focus on high-impact/high-likelihood risks, but as the current situation has proven, it’s well worth your time give some attention to high-impact/low-likelihood events, such as a pandemic. Cybersecurity concerns in a work-from-home world Now that many employees are working from home, one of the most obvious risks facing many organizations is cybersecurity. While your best defense against cybersecurity threats is still simply to train your employees to be suspicious, working from home opens the door to organization-wide cybersecurity risks through personal devices, home network security, and virtual private networks (VPN) for the simple reason that all risks on home devices get transferred to your corporate network.  Every business is different in terms of complexity of infrastructure and types of systems used, of course, but the following are some of the major trends and emerging threats to be aware of in the new environment: Internet of things (IoT): Internet-connected devices throughout employees’ homes – including items such as thermostats and baby monitors – all have their own operating systems that are ripe for exploitation by hackers because they are rarely updated. Depending on how your VPN is configured, it’s easy for hackers to get access to employees’ home networks, and from there, the organization’s network.  Phishing: Bad actors capitalize on people’s fears and current headlines in order to steal employees’ credentials and launch ransomware. Insider threats: Working remotely has meant a lot of internal controls have been temporarily loosened. As organizations try to get around not having the resources to share data securely (e.g., through the use of thumb drives and external file sharing), there is a lot of unintentional data leakage. Supply chain risk: Layoffs and furloughs affect your service providers too, including the level of service you receive from them, which affects the strength and quality of your network security.  For an in-depth guide to good remote work practices, we recommend the National Institute of Standards and Technology’s "Guide to Enterprise Telework, Remote Access, and Bring Your Own Device (BYOD) Security (NIST 800-46).” Fraud risk as an integral part of ERM – especially in a crisis Organizations are particularly susceptible to fraud in a crisis because fraud relies on deflection and distraction. Simply put, people behave differently in a crisis – they are motivated by emotions and follow different lines of reasoning than in normal times. That includes the bad actors as well as the good.   Crises also tend to inhibit fraud detection activity because people are focused on other things – for example, meeting sales targets or more obvious risks like cybersecurity – when in fact, fraud potential may have increased. It’s no surprise that bad actors will take this as an excuse to exploit others’ distraction. Individual behaviors in a crisis do not correspond to everyday life behaviors, which should be worrying for organizations. During the financial crisis in 2008, anxiety, confusion and disbelief lead to poor and unethical decisions, often with the justification that the action would happen “just one time.” That one time, of course, can have profound consequences, especially if multiple people are making multiple bad choices in an already risky environment.   So as we continue to move into a world of remote work, what can organizations do to mitigate the risk of fraud? Continue your ethics and compliance training: Send good messaging from your senior leadership regarding your values and mission to ensure your employees understand where you stand as an organization and are aware of how you expect them to act. Continue internal audits: While the urge may be to cut your focus here, now is not the time. There are many monitoring and oversight activities that can be done remotely.  Continue exit interviews: Exit interviews are a huge opportunity to uncover certain risks you may not know about, which is especially important in a crisis environment One final risk relates to organizations with leaders who are incapacitated by COVID-19 or helping family members who are sick. If the organization lacks qualified people in those leadership positions, over-reliance on skills and capabilities for people who are filling a leadership void can be problematic for organizations.  For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

The risks associated with COVID-19 are ongoing. Enterprise risk management (ERM) is concerned with how you manage your business’s risk every day, and making that process more transparent to your leaders by formalizing it.

Government Contractors

Fraud & Forensic Investigations

Enterprise risk management to support crisis response – a process, not a project

Video On Friday, May 15, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) loan forgiveness application with some new rules and guidance for business owners and not-for-profits. They must complete this form to apply for forgiveness of their PPP loan. Watch our complimentary on-demand webinar for an overview of the application form along with some insights and takeaways from our PPP loan specialists. They discuss questions yet to be answered by the SBA and what further guidance borrowers can hope for.  Topics also include: The standard 8-week covered period and the new alternative covered period The treatment of non-payroll costs The FTE reduction and safe harbor The salary/wage reduction and safe harbor
Click here to read more about PPP forgiveness. Request the PPP good faith certification considerations and documentation template Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program. Learn more on how Baker Tilly can help you navigate the PPP. FAQ on the CARES Act Baker Tilly specialists understand your industry and how an unplanned event such as the COVID-19 outbreak can affect your organization, employees, customers and suppliers. Visit our Small Business Resource Center. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

View our on-demand webinar for a discussion on the newly released PPP loan forgiveness application with some new rules and guidance for business owners and not-for-profits. Our specialists give an overview of the application form along with some insights and takeaways. They discuss questions yet to be answered by the SBA and what further guidance borrowers can hope for.

PPP loan forgiveness application released. What now?

As the U.S. grapples with growing unemployment rates, which rose from 10.3% to 14.7% in April,(1) not-for profit organizations have a significant cash flow issue to contend with related to the costs of unemployment. For some time, not-for-profits were allowed to opt out of state unemployment insurance programs and instead make payments of the actual costs of the benefits when incurred. Typically, this results in cash savings to individual not-for-profits. However, with rising layoffs resulting from the COVID-19 pandemic, not-for-profits are expected to see a significant increase in unemployment claims. Congress’ response to address this issue under Section 2103 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act was to reduce the amounts that self-insured not-for-profits owe by half; however, as noted in our article, "Department of Labor (DOL) deals cash flow blow to not-for-profits," guidance was recently issued stating that in order to receive the 50% reduction, not-for-for profits must pay the entire 100% of their unemployment charges upfront, and they will receive a 50% reimbursement sometime in the future. There is no guidance noting when the reimbursements will be received. It is likely that to weather this cash flow storm, not-for-profits may need to be prepared to take additional measures if Congress and the DOL do not take action soon.  Steps to take now To maximize cash flow in the short term in order to respond to the likely increased unemployment payments, not-for-profits should consider the following: Maximize draws on lines of credit while availability is still there. Take advantage of the payroll tax deferral program that is available. A not-for-profit that was a recipient of a Paycheck Protection Program loan may still use the deferral prior to and during the eight-week period before forgiveness starts. Take appropriate action to obtain special board-approved endowment allocations or borrowings.  Delay accounts payable payments.  Given the additional challenges within this sector, it is especially important for not-for-profits to diligently forecast their cash flow in order to understand when additional cash flow saving measures may need to be acted upon. Learn more in our article, "Developing a 13-week cash flow model for not-for-profit organizations.” Your Value Architects™ at Baker Tilly will continue to keep you informed as information is available. For more information on this topic or to learn how Baker Tilly specialists can help, contact our team. (1) U.S. Department of Labor, Bureau of Labor Statistics

To maximize cash flow in the short term in order to respond to the likely increased unemployment payments, not-for-profits should consider these recommendations.

The impacts of rising unemployment costs: Cash flow considerations for not-for-profits

As a result of the COVID-19 pandemic, many not-for-profit organizations are faced with significant declines in revenues due to program closures and decreased contributions. Not only does this present significant operational challenges for not-for-profit organizations, it presents financial reporting considerations as well.  At each annual and interim reporting period, accounting standards require management to evaluate whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern.  What process should a not-for-profit management team follow in this evaluation?  Step 1: Are there conditions or events, considered in the aggregate, that raise substantial doubt about the not-for-profit entity’s ability to continue as a going concern within one year after the date the financial statements are issued (or are available to be issued)? Substantial doubt exists when it is probable(1) that the not-for-profit entity will be unable to meet its obligations as they become due within one year after the date the financial statements are issued or available to be issued.  Management’s evaluation of whether substantial doubt is raised should not take into consideration management’s plans that have not been fully implemented (e.g., plans to borrow money, sell assets, etc., that have not already been completed at the time of management’s evaluation). What are some considerations for management as they evaluate whether substantial doubt exists under the current environment?  Management’s evaluation is required to include all conditions or events that are “known or reasonably knowable” at the date the financial statements are issued or available to be issued. As COVID-19-related conditions and events are evolving rapidly, management needs to monitor these conditions and events up to the date the financial statements are issued or available to be issued. This may require management to refresh evaluations that may have taken place weeks ago. Management should prepare an analysis showing their current liquidity and cash flow projection for the upcoming year to assist in this evaluation.  How should a not-for-profit’s cash flow forecast be factored into this section of their going concern assessments? Due to the uncertainty related to COVID-19, in many cases, the ability to accurately forecast cash flows may be severely limited. Thus, in circumstances where there is considerable uncertainty in future projections, it may be difficult for management to place a heavy reliance on their projection for their conclusion. In some situations, to meet or exceed the probable threshold, worst-case-scenario cash flows are likely the required starting point until there is more clarity regarding the course of COVID-19 and its impact on the not-for-profit’s operations Based on the analysis prepared, if management concludes that substantial doubt does NOT exist regarding the not-for-profit entity’s ability to continue as a going concern, no disclosures are required specific to going concern uncertainties. Based on the analysis prepared, if management concludes that substantial doubt does exist, Step 2 is required.  Step 2: Consider management’s plans intended to mitigate the adverse conditions or events. Is it probable that management’s plans will be effectively implemented?  What are some considerations for management as they evaluate their plans?  When evaluating whether their plans are probable, management should first consider what is under their control (i.e., not dependent on third parties, need to consider whether approval by the board of directors may be required): Cash on-hand Ability to borrow from unrestricted/quasi endowment funds Borrowing capacity (not-for-profits must understand their lenders’ ability to: prevent borrowings on lines of credit, require accelerated repayment due to covenant violations and/or subjective acceleration/material adverse change clauses, etc.) Ability to eliminate or defer cash payments, sell assets to generate cash (if not restricted due to lending or other agreements), etc. Ability to accelerate pledge payments or payments from other significant contributors or funders Ability to raise additional capital from related parties, etc. If it is probable that management’s plans will mitigate the conditions or events that raised substantial doubt, the not-for-profit should disclose information to help the users of the financial statements understand management’s plans by disclosing the following:  The conditions or events that raised the substantial doubt before consideration of management’s plans Management’s evaluation of the significance of those condition or events Management’s plans that alleviated the substantial doubt  If it is not probable that management’s plans will mitigate the substantial doubt, in addition to disclosing the three items noted above, the not-for-profit should also include in the notes to the financial statements a statement indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued).  The evaluation described above will take additional time and significant judgment. We encourage not-for-profits to begin discussions with key stakeholders, auditors and boards of directors early in the evaluation process. Depending upon the not-for-profit’s specific facts and circumstances, it may be prudent for management to consider asking for financial reporting extensions allowing them more time to assess the impact of COVID-19 and their plans to mitigate that impact. For more information on this topic or to learn how Baker Tilly specialists can help, contact our team. (1) Not-for-profits need to understand the definition of probable. Under ASC 205-40-20, probable is defined as, “The future event or events are likely to occur.” In terms of probabilities, think of probable as 75% +/- 5% to 10%

As a result of the COVID-19 pandemic, many not-for-profit organizations are faced with significant declines in revenues due to program closures and decreased contributions. Not only does this present significant operational challenges for not-for-profit organizations, it presents financial reporting considerations as well.

Not-for-profit financial reporting: Management’s going concern analysis – step by step

Authored by Paul Dillon, Michelle Hobbs, Pat Balthazor and Michael Wronsky In an effort to further support the economy during the pandemic closures, the House of Representatives passed the fourth COVID-19-related stimulus package, the Health and Economic Recovery Omnibus Emergency Solutions (Heroes) Act. The $3 trillion bill contains multiple spending measures designed to encourage employers to retain employees, provide additional economic impact payments to individual taxpayers and their families, extend the weekly unemployment compensation payments through January 2021, and further modify tax and benefit changes from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Tax Cuts and Jobs Act. The centerpiece of the plan is nearly $1 trillion of aid to state and local governments, which, it seems clear, will require financial assistance to get through this crisis. Some in the Senate may resist state and local aid, but this appears to be the issue that will drive negotiations forward since the current bill is unlikely to pass the Senate as is. Many of the tax items included in this bill could find their way into final legislation. Reports indicate it may be June or later before any compromise is reached on a new stimulus package. While talks continue between the administration and lawmakers, there appears to be no rush in pushing another piece of legislation through as we saw with the first three (and one-half). However, on May 13, Federal Reserve Chairman Jerome Powell urged Congress to consider another ambitious fiscal rescue package, warning that the economy may need additional support to avoid a cycle of business failures, job losses and bankruptcies. The combination of further business closures, rising unemployment claims and the financial condition of the states may pressure Congress to reach a compromise.  Improvements to employee retention credit (ERC) The applicable percentage of qualified wages reimbursed increases to 80% from 50%. The gross receipts requirement is modified to allow for a partial credit with a decline on gross receipts between 10% and 50% compared to same calendar quarter of previous year. The wage limit per employee rises to $15,000 per quarter; limited to $45,000 per calendar year. Large employer redefined to mean greater than 1,500 full-time employees and gross receipts of greater than $41.5 million in 2019. Health plan expenses can be considered qualified wages even when no other wages are paid to the employee. Provisions retroactive to CARES Act enactment date. Individual rebate improvements All dependents are eligible for $500 qualifying dependent payment; full-time student dependents under the age of 24 as well as adult dependents are eligible (retroactive to CARES Act enactment). Economic impact payments will be made to individuals with a taxpayer identification number instead of a Social Security number (retroactive to CARES Act enactment). Additional recovery rebates to individuals A second round of stimulus checks would see a $1,200 refundable tax credit for each family member ($1,200 for single/$2,400 married filing jointly); plus, up to $1,200 per dependent up to a maximum of three dependents. Phase-out begins at adjust gross income (AGI) of $75,000 single/$150,000 married filing jointly). Payments are in addition to CARES Act amounts and excess amounts will not be repaid. Child tax credit The credit amount increases to $3,000 per child ($3,600 for children under 6). It’s fully refundable for 2020 and 17-year-olds qualify. Dependent care assistance The provision is fully refundable for 2020 and its maximum credit rate jumps to 50%. Phase-out begins at $120,000. It doubles the amount of the credit to $6,000 for one qualifying child and $12,000 for two or more. The exclusion for employer-provided dependent care assistance increases to $10,500 from $5,000 for 2020. Flexibility for certain employee benefits Participants can carry over up to $2,750 in unused benefits or contributions from 2020 to 2021 from health flexible spending arrangements. Participants in dependent care flexible spending arrangements can carry over up to the maximum annual amount of unused benefits or contributions from 2020 to 2021. Retroactive amendments to plans are allowed. Deduction of state and local taxes (SALT cap) The limitation on the deduction for state and local taxes is eliminated for 2020 and 2021 Payroll credit for certain fixed expenses The payroll tax credit is 50% refundable for qualified fixed costs, including covered rent obligations, covered mortgage obligations and covered utility payments. Qualified wages (same definition as ERC) are limited to 25% or 6.25% of 2019 gross receipts with a maximum of $50,000. The credit is limited to employers with no more than 1,500 full-time equivalent employees or $41.5 million in 2019 gross receipts. Employers must be subject to a full or partial suspension due to a COVID-19 government order or at least a 20% decline in gross receipts from the same calendar quarter of the preceding year. Business interruption credit for self-employed The individual income tax credit is 90% refundable for certain self-employed individuals experiencing a significant loss of income. Please reach out to your Baker Tilly tax advisor to discuss how these changes may affect your tax situation.   This information should not be construed as a recommendation of a particular investment strategy, it is being provided for illustration purposes only.  The commentaries provided are opinions of Baker Tilly Investment Services, LLC.  While the information is deemed reliable, Baker Tilly Investment Services, LLC cannot guarantee its accuracy, completeness, or suitability for any purpose and makes no warranties with regard to any results to be obtained from its use, or whether any expressed course of events will actually occur.  Past performance does not guarantee future results. Baker Tilly Investment Services, LLC is a registered investment adviser and wholly-owned subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.

The House passed the $3 trillion Heroes Act, the biggest stimulus package in U.S. history. It bolsters parts of the CARES Act, but also proposes $1 trillion in aid to state and local governments – which may be key to how the bill moves forward in the GOP-led Senate.

Baker Tilly Investment Services

House passes $3 trillion stimulus package

Baker Tilly hosted a series of webinars on strategies that organizations could follow and implement to mitigate the immediate impact of the novel coronavirus (COVID-19) pandemic and emerge strong as local economies open up again. Topics covered in the series include: Business continuity plans Supply chain protection and enhancement Enterprise risk management Federal, state and local tax benefits The following infographic highlights key tips and guidance from the series for organizations to thrive in the post-pandemic world.
Baker Tilly COVID-19 support Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running

This infographic highlights key tips and guidance from our recent webinar series that organizations can follow and implement to thrive in the post-pandemic world

State & Local Tax

Building resilience today for a stronger tomorrow

Video The Small Business Administration announced it extended the deadline to May 14, 2020, for borrowers under the Paycheck Protection Program (PPP) to return loans they may not be able to certify are necessary for their ongoing operations in uncertain economic conditions. Included in the PPP is a provision that requires borrowers make a good faith certification that their loan is necessary to support their ongoing operations in the wake of the “uncertainty of current economic conditions.” The statutory language would appear to have broad application given the current economic climate; however, eligibility is complicated because the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers few guidelines for the loan program. Watch our complimentary on-demand webinar for an in-depth review of the good faith certifications as well as our recommendations of specific considerations to be made and documentation to be prepared for each of them.
Request the PPP good faith certification considerations and documentation template Baker Tilly has a comprehensive set of solutions available to assist qualifying businesses that have received, or will receive, loan proceeds that may be eligible for forgiveness under the Paycheck Protection Program. Learn more on how Baker Tilly can help you navigate the PPP. FAQ on the CARES Act Baker Tilly specialists understand your industry and how an unplanned event such as the COVID-19 outbreak can affect your organization, employees, customers and suppliers. Visit our Small Business Resource Center. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

View our on-demand webinar for a discussion on the extended deadline for borrowers under the Paycheck Protection Program (PPP) to return loans they may not be able to certify are necessary for their ongoing operations in uncertain economic conditions. Our specialists give an in-depth review of the good faith certifications as well as recommendations of specific considerations to be made and documentation to be prepared for each of them.

PPP loans: return the funds or seek forgiveness?

Authored by Steve Anami, MPA, Tiffany N. McCoy, MSAA, CFSA, CSOE, and Kyle O’Rourke, MPA, CIA, CRMA, CGAP The current COVID-19 crisis places a microscope on the decisions governments and not-for-profit organizations make. It is essential for decision-makers to understand the impacts of their decisions, as they have a fiduciary responsibility as stewards of the public funds they manage. A cost-benefit analysis is a critical tool for all public sector managers to leverage when making difficult financial decisions that will become commonplace as COVID-19 response and recovery processes continue.     Most people do not realize that they conduct a cost-benefit analysis when making everyday decisions. The decision can be for something simple, for example, choosing whether to use beef or a plant-based alternative to make chili. It can also be more complex, such as deciding whether to purchase a property in a suburb with a large yard or a luxury loft condominium with breathtaking city views. A cost-benefit analysis is simply a systematic approach that individuals and organizations can use to analyze the risks and rewards of a project and select the optimal solution. Cost-benefit analysis is a vital component of the decision-making process for governments and not-for-profit organizations. It is often used when considering a new program, eliminating services or even deciding which initiatives the organization will support as a component of its strategic mission.  Cost-benefit analysis includes the five fundamental steps outlined below.  Identify the scope – likely a project, initiative, program or service offering To establish a framework, details of the proposed program, new project, strategic initiative or service offering must be outlined. This allows organizations to understand what is being evaluated, as well as the relationship it has to the problem or challenge being addressed. Once the change or new program is outlined in detail, the current state of that environment will need to be outlined. This would include identifying the background, current challenges and performance of the environment related to the change or program. Determine the scope  Demographics need to be determined related to the decision and the population that it will impact. Key stakeholders should be identified and taken into consideration during the decision-making process. A time frame or period should be determined related to the decision-making process and implementation of the change or new program.  Determining the cost Total utility = explicit costs + implicit costs  Once the scope is defined, costs should be identified and categorized. To clearly compile a comprehensive list of costs, as a best practice, consider the external and internal costs of the project. Assumptions can be made regarding cost and should be disclosed and supported with evidence. It is important to distinguish whether costs are one-time, fixed or variable. The primary cost categories that should be considered are: Explicit costs  Real costs are considered to be expenses in developing a program or service, such as labor costs Directs costs are associated with the production of a product or service  Indirect costs are not directly accountable to a service or product, such as overhead costs Implicit costs Implicit costs are intangible costs that are not easy to identify (e.g., performance levels or satisfaction of the community) Note that it is important to consider costs over time. If we are expected to utilize or benefit from the project/program/initiative/service for many years, remember to consider the costs over that same time period. Ignoring long-term financial impacts only “kicks the can” down the road. Determining the benefits
 After identifying costs, benefits should be documented and classified. Benefits can be challenging to narrow down and determine because many cannot be genuinely quantified. Benefits that are identified should be monetized or associated with a value. Similar to costs, external and internal benefits to the organization should be documented. Explicit benefits can be quantified (e.g., additional revenue or reduced costs) Implicit benefits are difficult to quantify (e.g., satisfaction levels, increased retention or utilization/access to services or programs) Similar to costs, it is important to measure benefits over time.    Compute calculations of the cost-benefit analysis In order to understand the impact of the costs and benefits, an analysis needs to be conducted to understand the net benefit (or cost). Typically, during this step, various calculations can be completed that can result in values or ratios that would be compared.  Net present values should be determined with the application of discount rates over a time period and cost subtracted from benefits 
-Various discount rates can be considered, such as hurdle rates or annual effective discount rates Calculate the return on investment (ROI) for each option Identify if user fees will cover the cost of a project. If not, and the project it is still deemed beneficial by the key stakeholders, it is important to disclose that the benefits outweigh this fact Compare the cost and benefit results with a what-if analysis   There are several factors that will impact a government’s or not-for-profit organization's ability to make a meaningful decision. During this step, the return on investment calculated for each of your options can be compared with a what-if analysis to support overall decision-making.  For simple analyses, a what-if-analysis can be performed using the goal seek function in Microsoft Excel to compare all possible scenarios (i.e., options) available to arrive at the desired result. This will provide additional context that can be compared with the cost-benefit analysis conducted in step three.  Assumptions and limitations that impact decision-making It is imperative to identify the assumptions considered and the limitations that could impact a government’s or not-for-profit organization's ability to make a decision. A few examples of assumptions and limitations include: Assume that over time, costs and benefits may vary based on the market and changes to a user's tastes and preferences Do not assume that the greatest monetary net benefit is always an indication that the option is the best choice It can be a challenge to assess the implicit benefits of an option. For example, the value of a person's wellbeing or happiness It is critical to avoid bias, as it is easy to build in assumptions that prove the desired outcome. Have an independent and objective party take an unbiased look at the analysis and attempt to poke holes. Once governments and not-for-profit organizations have conducted their analyses, there are a few items to keep in mind when presenting the analysis to stakeholders: Present the results in a simple manner; if you get into the weeds on a concept that is confusing (e.g., implicit costs), you will lose the audience and possibly miss the opportunity to make an optimal decision on an important topic Visualization, such as interactive charts, graphs and maps, can be utilized to help convey the differences in the impact of your options Use consistent formulas as a baseline across different options  Microsoft Excel is a great tool to utilize for quick analyses  Conclusion Now you have a better understanding of the critical steps to conduct a cost-benefit analysis and the impact of assumptions, limitations and leveraging a what-if analysis. These helpful tips for government and not-for-profit organization decision-makers facilitate a comprehensive understanding of the impacts associated with the decisions that are made.  For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team. 

Governments and not-for-profits can follow these five fundamental steps to conduct a cost-benefit analysis. 

Five key steps in conducting a cost-benefit analysis

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