Video Through the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, additional Paycheck Protection Program loans will be available to qualifying organizations. View our on-demand webinar for an overview of the eligibility requirements as well as our PPP loan specialists’ insights on what you should be doing to prepare for a first time or second draw loan application. Additionally, Baker Tilly is working with CPA.com and the AICPA on an automated PPP loan application tool. This SOC-secured platform can expedite loan processing. The presenters will also provide participants with information about this tool and recommendations for your next steps regardless of your lender choice.
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View our on-demand webinar for an overview of the eligibility requirements as well as our PPP loan specialists’ insights on what you should be doing to prepare for a first time or second draw loan application.

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PPP2 is here. What does that mean for you?

For many of us, the past 9 ½ months, rolling out of bed and walking to our home office has started to feel like Groundhog’s Day. The impending release of a new round of Paycheck Protection Program loans (PPP2) has intensified that déjà vu feeling and flashbacks to the start of the pandemic.  The renewed PPP program is part of the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act,” which has an estimated price tag of $900 billion and marks the fourth package enacted in 2020 to provide continuing economic relief from the COVID-19 pandemic. This bill is part of the Consolidated Appropriations Act of 2021, which funds the federal government for the next fiscal year. This time around, however, and having learned some lessons from the difficult rollout of the original program, let’s hope that Congress and the Treasury Department have improved the program to help more businesses. The bill gives small businesses a second chance at PPP loans, expands the program to news and marketing organizations and provides grants to certain live performing arts organization operators, museum operators and motion picture theatre operators.  It’s hard to imagine now, but applications for the original PPP loan program were being processed just one week after the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed in March and everyone (small businesses, Treasury, the Small Business Administration (SBA), banks, CPAs and lawyers, to name a few) were scrambling. Now that PPP2 is here – what has changed, what have we learned and what are we doing differently?
Background The original PPP program offered loans to qualifying businesses with an interest rate of 1%. Loans issued prior to June 5, 2020 have a maturity of two years; loans issued after June 5, 2020 have a maturity of five years. Loan payments are deferred for borrowers who apply for loan forgiveness.  The PPP included three rounds of funding between March and August, when the program closed to new loans. During that time, the SBA approved $525 billion in loans to 5.2 million qualifying entities; $134 billion of the original amount allocated from the program was never disbursed. The average loan size was $100,729; 5,460 lenders have participated in the program. About 50% of the loans went to four sectors: healthcare, professional services, construction and manufacturing. As of late November, about 11% of companies that received a loan have filed for forgiveness. There is debate if PPP was the right program to roll out and success varies by company, but there is no debate that it helped support the economy and keep people employed. For some industries, such as restaurants, hotels, cinemas, travel and dry cleaners, the PPP was only a small life preserver and companies in these sectors struggled to meet the payroll threshold of 60% (which had been reduced from 75% in the original law). Other industries experienced unexpected growth during COVID-19; PPP loans helped with expansions and forgiveness was easily obtained. PPP “second draw” loans So, how does the new bill change the PPP? The goal of Congress was to get this second round of PPP to those that need it the most, so they added new qualifiers. Businesses will be eligible for a “PPP second draw” loan of no more than $2 million (with some exceptions) if they: Have 300 or fewer employees; Have used or will use the full amount of their first PPP; and Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same 2019 quarter Borrowers generally may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. Accommodations and food services companies (NAICS code 72) may receive loans of up to 3.5 times average monthly payroll costs. Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location. Waiver of affiliation rules that applied during initial PPP loans apply to a second loan. Sec. 501(c)(6) organizations (typically Chambers of Commerce) and destination marketing organizations are also now eligible for PPP loans, if they meet certain conditions.  FCC license holders and newspapers with more than one physical location are now also eligible for PPP loans as long as the business has no more than 500 employees per physical location. The bill requires the SBA to release guidance to lenders within 17 days of enactment that allows borrowers who returned all or part of their PPP loan to reapply for the maximum amount applicable so long that they have not received forgiveness. This is especially relevant for partnerships that submitted applications in early April prior to regulations released later relating to eligibility of guaranteed payments.  The bill resumes the payment of principal and interest (P&I) on small business loans guaranteed by the SBA under the 7(a), 504 and Microloan programs established under the CARES Act. Emergency EIDL grants The bill extends the covered period for Economic Injury Disaster Loan (EIDL) grants through December 31, 2021. It extends time for SBA to approve and disburse Emergency EIDL grants from 3 to 21 days. The bill also repeals a provision that required PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount. The SBA is required to issue rules that ensure borrowers are made whole if they received PPP loan forgiveness and their EIDL was deducted from that amount. Business deductions saved The bill also overrules the IRS to clarify that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan, retroactive to the enactment of the CARES Act. This is a relief to the struggling businesses hoping to carryback net operating loss (NOL) and other businesses hoping to avoid bank financing for an April 15 payment. The bill expands expenses that are eligible and forgivable to include: Covered operations expenditures, including payment for any software, cloud computing, and other human resources and accounting needs Covered property damage costs, related to public disturbances that occurred during 2020 that are not covered by insurance. Covered supplier costs related to contracts, purchase orders or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made.  Covered worker protection costs such as personal protective equipment and adaptive investments that help a loan recipient comply with federal and local health and safety guidelines  The bill also modifies rules for forgiveness by simplifying forgiveness documentation submission requirements for loans under $150,000; this change is designed to speed up the approval process and reduce burden on the banks. Borrowers will need to do all the calculations and maintain supporting documentation for up to four years; so still need to calculate those 24 different ways to maximize forgiveness. Additional expenses are now eligible for forgiveness including supplier and PPE costs; however, payroll is still required to make up 60% of the eligible costs; so adding additional eligible expenses will not impact many companies.  PPP learning curve The first round of PPP was a huge learning curve for everyone involved, so what did we learn? To start, the rules of engagement have been set for the most part. In March and April, new FAQs were coming out daily from the Treasury clarifying various issues (what’s included in payroll costs, net or gross payroll, clarification of who is eligible, among 50-plus FAQs). Today, most eligible borrowers have a solid grasp of how to calculate the month of payroll and 2.5 or 3.5 times for the loan amount. The trick will be which companies are eligible this time around.  The necessity question will rear its ugly head again this round. Back in April, almost every employer in the country felt uncertain about where we were headed, so obtaining the PPP was a no brainer. This time around, we have over nine months of operating results to look back on. If a company had sales less than 30% over the previous year in quarter two of 2020, but sales have since rebounded and are maybe higher than in previous years, do they still need additional PPP to support operations and pay employees? The answer will depend on each business’ situation but be certain the SBA will be doing selective reviews of loans during the funding process and how companies spent the money. Both the banking community and CPA firms are more prepared for this round of PPP loans. Banks have their portals and processes built, but not all will be anxious to participate in a new round of PPP loans. Fintech companies (think Intuit, Paypay, Biz2Credit, Cabbage) got invited late to the game for Round 1 but hope to lead the automation and funding in Round 2. The AICPA has been instrumental in making sure firms are ready this time and has partnered with multiple firms to make funding faster for clients. Check out Baker Tilly’s funding portal here to see just such an example. Remember, back in April 2020, the initial $350 billion of PPP funds was gone in two weeks, and a majority of that in the first weekend. So, if your business is struggling and needs this funding, be prepared. Gather your documents, talk to your CPA and find your funding source as quickly as you can. Also remember that the PPP under the CARES Act was significantly modified by regulation and guidance for several months; the new law when enacted will be subject to this modification also. In addition, with a new administration starting January 20, 2021, further changes to small business support may be coming. 
View additional resources: Preparing for PPP: CPA Business Funding Portal Paycheck Protection Program (PPP) solutions Small and family business coronavirus resources For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

With PPP renewed as part of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, understand how the expansions and grants can give small businesses a second chance at PPP for the next fiscal year.

Preparing for PPP: CPA Business Funding Portal

PPP2 – Here we go again …

Authored by Paul Dillon and Michael Wronsky After several days of uncertainty, the Consolidated Appropriations Act of 2021, which included a fourth round of COVID-19 stimulus and tax extender provisions, has been signed into law as it passed both chambers of Congress, which, among many other items, allows deductions for expenses funded by forgiven Paycheck Protection Program loans. For additional details, please see our previous tax alert. The president last week had demanded changes to the legislation, including an increase of the $600-per-person stimulus checks to $2,000.  The House is expected to vote on increasing the direct payments from $600 to $2,000 as early as today. No draft of income limitations or phase-outs is currently available at the time of this release. However, we do not expect the bill to prevail in the Senate, but will continue to monitor this legislation and provide updates as needed. Please reach out to your Baker Tilly tax advisor to discuss how the above 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 Consolidated Appropriations Act of 2021 has been signed into law which finalizes a fourth round of COVID-19 stimulus programs.

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video View the presentation In conjunction with MHA MacIntyre Hudson and Baker Tilly Netherlands, Baker Tilly US recently hosted a comprehensive webinar focused on the unique challenges and opportunities that many companies are facing as a result of Brexit.  It is clear that Brexit is going to impact companies doing business in the EU and the U.K. in many ways – from their day-to-day business, to their handling of value-added tax (VAT) and customs, to their tax implications. Below we have highlighted some of these impacts, and we welcome you to reach out to Baker Tilly’s specialty tax leader, Lynette Stolarzyk, to learn more and discuss ways that Baker Tilly can assist your company.
What is the impact of Brexit from a U.K. VAT and customs perspective? Brexit is officially happening. The U.K. has left the European Union and finds itself in a transitional period through the end of the year. In the situation that the U.K. is being considered a non-EU country, from a VAT and customs perspective from Jan. 1, 2021: All supplies of goods to the EU from the U.K. will become third-country exports and be subject to customs declarations. The same applies for movements of goods from the EU to the U.K.  Customs duty will be charged on U.K. goods imported into the EU, based on the tariffs determined by the EU. Customs duty will be charged on EU goods imported into the U.K., based on the tariffs determined by the U.K.  As a result, we are down to a matter of weeks for the U.K. and the EU to agree on a trade deal in time for 2021. Businesses in the U.K., throughout the EU and across the world are eagerly awaiting the trade deal specifics (including tariff details) in order to plan for the new rules and they anticipate incoming challenges beginning on Jan. 1, 2021. Some of the key customs and U.K. customs and VAT changes that we know are going to happen include: The introduction of the UK Global Tariff: The U.K. will no longer be bound by the current EU Common External Tariff.  The postponement of import VAT accounting: VAT will not be paid on the importation of most goods. The deferment of import declarations: This initiative applies only to “standard” goods and requires submission of customs declaration within six months. The changes surrounding e-commerce: With the abolishment of the Low Value Bulking of Imports (LVBI) on Jan. 1, the overseas seller or online marketplace will be required to charge VAT at the point of sale for any transactions under £135. The introduction of the Trader Support Service: This is a new online portal for declaring goods going into Northern Ireland from Great Britain. The key issues here include the importance of incoterms, which determine who will be the importer and thus responsible for duty and VAT. U.S.-based businesses may already be familiar with incoterms, but the complicated rules will be new to many U.K. and EU businesses.  Another key issue is the customs relief regimes, which are meant to help minimize duty costs and in particular to minimize the chance of getting hit with double-duty costs. Previously, companies could import goods from the U.S. into the U.K. and then onto other countries in the EU without paying duty twice, but now the importer may incur double-duty. Utilizing a customs warehouse – whether it is your own or through a third party – is one possible solution to avoiding double-duty. Other key issues that you should be aware of include: Labelling and packaging legislation: The EU labeling legislation requires an EU address on the label of imported goods. Particularly for food and beverage companies, this is an important challenge moving forward. Conformitè Europëenne (CE) marks and U.K. Conformity Assessed (UKCA) marks: If you are importing goods from outside the U.K., instead of using the CE marking, you will likely need to switch to the UKCA marking, where it’s required, although there will be a one-year grace period where CE marks will be allowed. Administrative issues: You may need agents, fiscal representatives or someone to oversee your VAT registrations and/or your customs declarations. How does Brexit impact U.S. businesses for VAT and customs? VAT is a consumption tax which taxes every transaction in a supply chain. Suppliers charge VAT when selling a product or service and business customers reclaim the VAT charged. Only the consumer carries the VAT burden. For U.S. companies, VAT reporting obligations can be triggered by an establishment (such as a legal entity or nexus in a foreign country) but also by having “only” inventory in an EU country from which these goods are sold to and transported to customers, among other ways. When it comes to VAT, there are many key considerations that a company must consider. Some of the important questions are: Are you supplying goods or are you providing services? In which EU country are these taxable for VAT? Who is responsible for the payment of VAT to the tax authorities? What VAT rate is applicable? Is the VAT charge refundable? Can simplified regulations be applied? Are any exceptions applicable? Are any additional conditions applicable? U.S. businesses that import goods to the U.K. and then sell those goods throughout Europe will face a litany of new issues. Who is responsible for the export charge? Who is responsible for the customs clearance into the EU? This is relevant because when goods are imported into an EU country, import duties and import VAT are due right away. Import VAT deferment is another dynamic that impacts certain countries. If you hold stock in the U.K. while the EU is your main market, you and your customers will run into customs obligations for every transaction involved. With this in mind, perhaps it is worth exploring whether it makes sense to change the nation where you house your inventory in Europe.  U.S. businesses that provide services to the U.K. and the EU face a different set of VAT rules and requirements, and in some situations, changes must be made to the current set-up to make sure that companies comply and unnecessary costs are avoided. The factors include what type of service they provide, whether they are B2B or B2C, and whether they provide electronic services (online media, apps, etc.). Of course, there are certain VAT simplification rules that will no longer be applicable in case of a no-deal Brexit. This list includes triangular transactions, call-off stock simplification rules, regulations surrounding the installation of goods, and distance selling rules. So with all this as a background, what do you need to do? Analyze your supply chain and pricing: Check which terms are applicable to your supply chain and check if your pricing is accurate. We recommend that you model, model and then model the numbers some more. Please reach out to us if you have any questions. Check your customs and logistics partners: Are you ready for the upcoming changes? What are the additional charges for the export and import declarations?  Check your contracts: Are the contracts closed with all parties relevant to your supply chain up to date? Not only with your customers but also with your suppliers. Arrange all formalities: Make sure you can continue business with little or no interruption on Jan. 1, 2021. If required, get an Economic Operators Registration and Identification (EORI) number in the U.K., in an EU country, arrange the necessary VAT registrations, etc.  From a structure and direct tax perspective, a no-deal Brexit would present the following changes: Parent subsidiary directive and royalties and interest directive would no longer apply
– These directives allow companies and subsidiaries in the EU to pay dividends to parent companies within the EU with no withholding tax. The U.K. has tax treaties with virtually all EU countries, meaning there likely will not be a significant change if these directives are eliminated. (Depending, of course, on which EU states you are operating in.) Directive on Administrative Cooperation (DAC) would no longer apply
– DAC gives rise to DAC 6, which is designed to stop questionable tax-avoiding transactions between states but often captures transactions with good intentions. This is a reporting obligation with stringent penalties for failures, so it needs care. Anti-Tax Avoidance Directive would cover various tax-avoiding schemes U.S. Limitation on Benefits provisions may apply
– This isn’t considered an issue at the moment, but a move-out of the EU could trigger additional complications. So, what needs to change at your organization as it pertains to Brexit? On the direct tax side, there likely is not much you need to worry about it. Of course, though, it depends on your business and structure, on whether you provide goods or services, on whether you import, export or both, and whether you truly need an EU presence, among other factors.  Each company needs to decide if it wants to have a subsidiary based in the EU, but generally, companies will not need one. As far as whether they should create a holding company in the U.K., some of the factors to consider, from a fiscal standpoint, include the U.K.’s: Extensive tax treaty network Foreign dividend exemption Substantial shareholdings exemption Lack of withholding tax on dividends paid Favorable incentives for R&D, Patent Box Low CT rate in G7/20 Flexible loss rules From a non-fiscal standpoint, the U.K. offers U.S.-based companies a similar language and a similar culture, as well as the U.K.’s: Economic and political stability Respected legal system Flexible labor market Strong and credible capital markets Relatively young population So while Brexit will change the relationship between the U.K. and the EU, it may not change the way you do business or require you to make any structural changes. You should review your business to determine whether you are impacted and to what degree. Of particular importance is analyzing your supply chain and conducting a variety of models to determine which direction makes the most sense for your company. Of course, the sooner you begin this process, the better. Whatever you need and whatever you ultimately decide, Baker Tilly and our team of international specialists – as well as our extensive Baker Tilly International network – are always here to help.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our 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.

On demand webinar: navigate the complex rules of customs and VAT to continue trading with the U.K. and EU. Baker Tilly International will help you prepare for Jan. 1, 2021.

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As we write our annual tax-planning letter, we are constantly reminded that this is no ordinary year. The fall continues to be dominated by a highly partisan election, a second wave of COVID-19, an economy struggling to recover from the worldwide pandemic and a wildly fluctuating stock market. Adding to this mix of uncertainty is the ever-changing tax landscape. 2020 has seen not only continued guidance relating to the Tax Cuts and Jobs Act (TCJA), but also the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act contains numerous revisions to the TCJA, which in some cases require taxpayers to redo returns two years after the fact. The CARES Act also introduced the PPP loan program, the rules for which were written hastily and leave several important questions still unanswered.  All of this created a perfect storm for taxpayers — businesses and individuals alike. Besides continuing economic uncertainty, tax rates could be in play depending on the election results. The prospect for increasing rates could hinge on control of the Senate, especially if the Democrats win the White House. While a change in control of the House of Representatives is not anticipated, if Republicans retain their majority in the Senate, it is unlikely any meaningful rate changes would be enacted. In addition, the economic downturn, coupled with trillions of dollars of enacted stimulus legislation, has created a federal deficit exceeding $3 trillion annually. At the end of June (the close of the government’s third quarter), the deficit represented 13.1% of GDP, a level not seen since World War II. To reduce this amount, anticipate either higher tax rates or a combination of spending cuts and restrictions on deductions. In terms of limiting deductions, remember the business interest limitation using 30% of adjusted taxable income is temporarily increased to 50% through 2020 (returning to 30% in 2021). Furthermore, 100% bonus depreciation is set to expire for assets placed in service after Dec. 31, 2022. Congress may choose to limit other deductions in attempts to raise revenue. While many are facing difficult times, business does not stand still. Solid financial and tax planning is needed now more than ever. With our year-end letter, we have always urged readers to not only do their annual tax planning, but to use this period to conduct a full financial review of their portfolios and estate planning as well. This year, such a financial review is not just recommended, it is critical. In the coming weeks and months, managing cash and minimizing current taxes is even more important as the economy recovers. The CARES Act presents some one-time opportunities for taxpayers to reduce taxes and obtain refunds from prior years. For example, while the TCJA had repealed the net operating loss (NOL) carryback rules, the CARES Act reinstated them for 2018, 2019 and 2020 losses. If you have a taxable loss in 2020, careful analysis is needed to maximize the tax benefit of such loss since a 2020 loss can be carried back five years. However, losses incurred in 2021 will no longer be eligible for any carryback. As a result, this represents your last chance to recover tax payments made in 2015 through 2019. If you need cash currently, look into filing an NOL carryback return as soon as possible after year-end to expedite your refund. In addition to these NOL changes, our 2020 year-end tax-planning letter focuses on tax topics with the above economic and political backdrop in mind. We examine multiple pieces of CARES Act and TCJA guidance (including Paycheck Protection Program debt forgiveness, the employee retention credit and payroll tax deferral), analyze pass-through loss and cancellation of indebtedness strategies, summarize tax capital reporting, define the home office deduction as well as review a myriad of international and state and local tax changes.  As always, your Baker Tilly advisor is ready to assist you in meeting your financial and tax objectives. Contact an advisor 
Visit the sections below for more information about the most pressing year-end tax issues: Business interest limitation rules (section 163(j)) – Where do we stand? Will refunds from losses become a lifeline for struggling businesses? Loan modifications: Take care of them so they don't take care of you Lease modifications: Beware of potential tax ramifications Tax issues created by PPP loan forgiveness Limited liability companies in a loss environment Carried interests in 2020 and beyond Final 2020 bonus depreciation regulations Partnership tax capital – 2020 reporting requirements loom Employee benefits and executive compensation update Proposed regulations issued to implement TCJA small business taxpayer simplified accounting methods Home office deduction Opportunity zones – reminder of COVID-19 relief and remaining areas of uncertainty Residency rules and state trust taxation – Beware the traps Time running out for year-end estate planning State and local tax update U.S. international tax update Conclusion We will continue to keep you informed of the latest developments by sending updates to assist you with planning throughout the remainder of the year. See our 2020 Tax Planning Guide  for additional ways to help you reduce your taxable income by taking advantage of every tax break to which you are entitled.  Take a look back on our 2019 year-end tax letter. 
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.

Baker Tilly’s 2020 year-end tax focuses on tax topics with the above economic and political backdrop in mind. Our professionals look at international, federal, state-and-local and compensation tax issues among other areas.

PPP2 is here. What does that mean for you?

PPP2 – Here we go again …

President signs stimulus act into law

Brexit briefing

2020 year-end tax letter

PPP2 is here. What does that mean for you?

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