april 2, 2020 - barclay group

April 2, 2020

COVID-19 is gripping our world and affecting our businesses in ways that no one could have predicted. While we all find ways to navigate through the current situation, we want you to know that Barclay Group is here to help. We view ourselves as more than just your Landlord; we are a vested partner in your business, and therefore want to work together to overcome the challenges we are all facing. As your partner, we want to keep you informed and ahead of new developments, specifically resources and assistance being made available to your business.

On March 27, 2020, the U.S. Federal Government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”), which includes a wide range of financial aid for your business. The CARES Act will make a significant impact on our economy by supporting small businesses and providing federal loans to businesses severely impacted by COVID-19. Additionally, it provides tax relief and tax incentives for individuals and businesses alike. Currently, the Federal Government and their SBA lending partners are planning to roll out this program on April 3rd, 2020. We encourage you, in consultation with an accountant, to seek assistance for your business and employees. We are here to assist and answer any questions you might have as well.

Below is a brief summary of financial assistance programs available to support individuals and businesses affected by COVID-19. Additionally, attached is a detailed summary of the CARES Act as provided by the U.S. Chamber of Commerce, and another summary provided by Wolters Kluwer, which specifically details the tax opportunities in the CARES Act that are available to individuals and businesses. We have also outlined specific programs that are available through State governments. We encourage you take full advantage of the programs that are being offered, and to do so in an expedited manner.

1. Small Business 7(a) Loan Program - “Paycheck Protection Program”:

NOTE: Please make sure you pay special attention to the “Loan Forgiveness” section below.

Eligibility: A small business as defined by SBA Standards, generally up to 500 employees, or 1,500 employees depending on sector/revenue. This includes businesses in the Accommodation (Hotels/Motels) or Food Services (restaurants, bars, etc.) sectors (NAICS Code 72) with up to 500 employees per location.

Loans will be sized based upon 2.5 months of payroll costs, including self-employed, sole proprietors and independent contractors (said another way, 250% of average monthly payroll expense).

Funds may be used for payroll costs, rent & utility payments, and interest payments on mortgages.

Loan Forgiveness: The borrower may have their loan forgiven to the extent and up to the amount used to pay payroll costs, rent & utility payments, or interest payments during the 8-week period following the date that the loan was originated. Further, the employer must certify that they will maintain their average number of full-time equivalent employees, and refrain from reducing total compensation by more than 25%.

Application Requirements: No personal guarantee or collateral is required for the loan. The lenders are expected to defer fees, principal, and interest. While application requirements are not yet finalized, each applicant should be prepared to provide the following items: (i) Articles of Incorporation / Organization, (ii) Driver’s License (for everyone with ownership over 20%), (iii) payroll expense verification, (iv) 1099’s for independent contractors, (v) signed application & certificate.

Available Lenders: Local and Regional Banks that participate as SBA lenders will originate and administer the loans. If you have a relationship bank already, we would advise reaching out to them, as they are likely a participating bank. If you do not have such a relationship, and/or they are not a participating bank, please visit the website below for a list of available lenders in your area. We are also happy to assist in identifying a preferred lender.

Please visit https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources to find more information from the SBA and the many programs and opportunities for help they are providing.

2. SBA Economic Injury Disaster Loan and/or the SBA Express Bridge Loan

Program:

The SBA’s Economic Injury Disaster Loan (“EIDL”) is a program available directly through the SBA on their website (see link provided above). This program is available to small business owners and may include an initial advance of up to $10,000.00, followed by a potential working capital loan of up to $2,000,000.00. Funds will be made available within three (3) days of a successful application, and the initial advance of $10,000.00 will not have to be repaid. Under this program principal and interest relief is available.

The SBA Express Bridge Loan Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000.00 with less paperwork. This loan can provide economic support, bridging the gap while a small business applies for the EIDL.

3. Economic Stabilization and Assistance to Severely Distressed Sectors:

This large loan program, managed directly by the United States Treasury, is designed for larger businesses and industries that do not otherwise

qualify for the SBA loan program, but were severely impacted and have seen continued operations jeopardized.

4. Tax Provisions:

Individual Tax Relief:

2020 Recovery Rebates/Direct Payments for Individuals – provides up to $1,200.00 for individuals; $2,400.00 for married couples and $500.00 for each child claimed as a dependent. The rebate phases out for incomes over $75,000.00 (single) and $150,000.00 (married).

Business Tax Relief:

Qualified Improvement Property Correction – Corrects an error in the timeline for Tenant Improvement Depreciation retroactive to 2018.

Employee retention credit for employers subject to the closure due to COVID-19 – Provides a refundable payroll tax credit of wages paid during the COVID-19 situation. See applicable requirements to qualify.

Delay of Payment of Employer Payroll Taxes – Allows employers and self-employed individuals to defer payment of the employer share of the Social Security Tax.

5-year Net Operating Loss (NOL) Carryback – A loss from 2018, 2019 or 2020 can be carried back five years and removes the 80% taxable income limitation to allow an NOL to fully offset income.

Suspension of the Limitation on Losses from Pass-through Businesses.

Acceleration of Recovery of Corporate AMT credits.

Relaxation of Business Interest Deduction Limits – Increaser to 50 percent of taxable income for2019 and 2020.

Increased Unemployment Benefits for workers.

If at any time you have questions about your lease, your space, the shopping center, or any other issue, please call or email Arleen Foster, Director of Property Management, at 602-224-4155 or [email protected]. Arleen and the team at Barclay will work very quickly to provide answers to your questions or concerns. Additionally, if you are unable to fulfill your rent obligations due to adverse effects of the COVID-19 situation, please let us know as far in advance as possible so our Property Management team can discuss your options with you.

We hope that the information provided herein will help your business and provide some assistance to you during this disruption we are all facing. We encourage you to contact your local SBA banker and your accountant to take full advantage of these programs. If you have any questions regarding these programs or if you have any other questions regarding the information provided herein, please feel free to contact us at any time. As we all work together through these challenging times, please know that

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program, the initiative provides 100% federally guaranteed loans to small businesses. Importantly, these loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. The administration soon will release more details including the list of lenders offering loans under the program. In the meantime, the U.S. Chamber of Commerce has issued this guide to help small businesses and self-employed individuals prepare to file for a loan.

Here are the questions you may be asking—and what you need to know.

Prepared by the U.S. CHAMBER OF COMMERCE

CORONAVIRUS EMERGENCY L ANSSmall Business Guide and Checklist

Am I ELIGIBLE?

What will lenders beLOOKING FOR?

You are eligible if you are:• A small business with fewer than 500 employees• A small business that otherwise meets the SBA’s size standard• A 501(c)(3) with fewer than 500 employees• An individual who operates as a sole proprietor• An individual who operates as an independent contractor• An individual who is self-employed who regularly carries on any

trade or business• A Tribal business concern that meets the SBA size standard• A 501(c)(19) Veterans Organization that meets the SBA size standard

In addition, some special rules may make you eligible:• If you are in the accommodation and food services sector (NAICS 72),

the 500-employee rule is applied on a per physical location basis• If you are operating as a franchise or receive financial assistance

from an approved Small Business Investment Company the normal affiliation rules do not apply

REMEMBER: The 500-employee threshold includes all employees: full-time, part-time, and any other status.

In evaluating eligibility, lenders are directed to consider whether the borrower was in operation before February 15, 2020 and had employees for whom they paid salaries and payroll taxes or paid independent contractors.

Lenders will also ask you for a good faith certification that:1. The uncertainty of current economic conditions makes the loan

request necessary to support ongoing operations2. The borrower will use the loan proceeds to retain workers and

maintain payroll or make mortgage, lease, and utility payments3. Borrower does not have an application pending for a loan

duplicative of the purpose and amounts applied for here4. From Feb. 15, 2020 to Dec. 31, 2020, the borrower has not

received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold emergency loans made between Jan. 31, 2020 and the date this loan program becomes available into a new loan)

If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.

What lenders will NOT LOOK FOR

•• That the borrower sought and was unable to obtain credit elsewhere.

•• A personal guarantee is not required for the loan.

•• No collateral is required for the loan.


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How do I calculate my average monthly

PAYROLL COSTS?NON SEASONAL EMPLOYERS:

Maximum loan =

2.5 x Average total monthly payroll costs incurred during the year prior to the loan date

For businesses not operational in 2019:

2.5 x Average total monthly payroll costs incurred for January and February 2020

SEASONAL EMPLOYERS:

Maximum loan =2.5 x Average total monthly payments for payroll costs for the 12-week period beginning February 15, 2019 or March 1, 2019 (decided by the loan recipient) and ending June 30, 2019


sum of INCLUDED payroll costs

sum of EXCLUDED payroll costs

PAYROLLCOSTS

EXCLUDED Payroll Cost: 1. Compensation of an individual employee in excess of an annual salary

of $100,000, as prorated for the period February 15, to June 30, 20202. Payroll taxes, railroad retirement taxes, and income taxes 3. Any compensation of an employee whose principal place of

residence is outside of the United States 4. Qualified sick leave wages for which a credit is allowed under section

7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

INCLUDED Payroll Cost:1. For Employers: The sum of payments of any compensation with

respect to employees that is a:• salary, wage, commission, or similar compensation; • payment of cash tip or equivalent; • payment for vacation, parental, family, medical, or sick leave• allowance for dismissal or separation• payment required for the provisions of group health care benefits,

including insurance premiums• payment of any retirement benefit• payment of state or local tax assessed on the compensation

of the employee

2. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period.

How much can IBORROW?Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.

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Borrowers are eligible to have their loans forgiven.

How Much?A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:• Payroll costs (using the same definition of payroll costs used to

determine loan eligibility)• Interest on the mortgage obligation incurred in the ordinary

course of business• Rent on a leasing agreement• Payments on utilities (electricity, gas, water, transportation,

telephone, or internet)• For borrowers with tipped employees, additional wages

paid to those employees

The loan forgiveness cannot exceed the principal.

How could the forgiveness be reduced?The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Specifically:

Reduction based on reduction of number of employees

Reduction based on reduction in salaries

What if I bring back employees or restore wages?Reductions in employment or wages that occur during the period beginning on February 15, 2020, and ending 30 days after enactment of the CARES Act, (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.

Will this loan be FORGIVEN?

WHAT'S NEXT?

PAYROLL COST Calculated on page 2

Average Number of Full-Time Equivalent Employees (FTEs) Per Month for the 8-Weeks Beginning on Loan Origination

Option 1:Average number of FTEs per month from February 15, 2019 to June 30, 2019Option 2:Average number of FTEs per month from January 1, 2020 to February 29, 2020For Seasonal Employers:Average number of FTEs per month from February 15, 2019 to June 30, 2019

PAYROLL COST Calculated on page 2

For any employee who did not earn during any pay period in 2019 wages at an annualized rate more than $100,000, the amount of any reduction in wages that is greater than 25% compared to their most recent full quarter.


Look out for more information about eligible lenders and additional guidance from the SBA soon.

For more guidance and resources for small businesses, visit uschamber.com/co

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© 2020 CCH Incorporated and its affiliates. All rights reserved.

March 27, 2020

CARES Act

✔ $2.2 Trillion Stimulus Package Includes Vast Amounts of Relief

✔ $1,200 “Recovery Rebate” Provided for Most American Adults

✔ Individual Relief Includes Enhanced Charitable Deductions

✔ Business Tax Relief Provides Increased Liquidity

Inside

Highlights

Individual Tax Relief ................................................1

Business Tax Relief ................................................. 2

Additional Provisions ............................................. 4

SPECIAL REPORT

President Signs $2.2 Trillion Bill to Support Economy During Virus PandemicAs COVID-19 continues to upend nearly every aspect of life in the United States, Congress has been working to relieve suffering Americans. Having passed the Families First Coronavirus Response Act on March 18 in an effort to limit the spread of the pandemic and support relief efforts, Congress turned to stabilizing the economy. After days of furious negotiations between Republicans and Dem-ocrats on the Hill and Trump Administration officials, the Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. With a $2.2 trillion price tag, the Act is the most expensive piece of legislation ever passed.

The Act passed in the Senate by a unanimous vote late on March 25, 2020 and was passed in the House of Representatives on March 27, 2020. The President signed the bill into law later on March 27, 2020.

The Act looks to make a significant impact on the economy by providing loan forgiveness, supporting small businesses, enhancing unemployment insurance, and providing federal loans to industries severely impacted by the pandemic. In addition, it provides tax relief and tax incentives for individuals and businesses alike. The majority of the tax relief is designed to increase liquidity in the economy, largely through the relaxation of limitations on business deductions and the deferral of taxes, but also with the introduction of recovery rebates for individuals.

INDIVIDUAL TAX RELIEFRecovery RebatesThe most well-publicized provision is the $1,200 recovery rebates for individual taxpayers. The rebate amounts are advance refunds of credits against 2020 taxes, and equal to $1,200 for individuals, or $2,400 for joint filers, with a $500 credit for each child. The amount of each rebate is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2018 adjusted gross income (unless a 2019 return has already been filed), and the phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the rebates are completely phased out for single filers with 2018 (or 2019, if applicable) adjusted gross income over $99,000, heads of household with $136,500 (or higher, depending upon whether status is established because of children), and joint filers with $198,000.

Tax Briefing

© 2020 CCH Incorporated and its affiliates. All rights reserved. March 27, 2020

2 Tax Briefing—CARES Act

“ The Act is the most expensive piece of legislation ever passed.”

In order to be eligible for a recovery rebate, the individual must not be: (1) a nonresident alien, (2) able to be claimed as a dependent on another taxpayer’s return, (3) an estate or trust, and (4) must have included a Social Security number for both the taxpayer, the taxpayer’s spouse, and eligible children (or an adoption taxpayer identification number, where appropriate). The Act includes additional rules for the application of the credit.

The Secretary of the Treasury is directed to provide the rebate as rapidly as possible.

Retirement PlansThe Act also waives the 10-percent penalty on early with-drawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. For purposes of the penalty waiver, a coronavirus-related distribution is one made during the 2020 calendar year, to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus. Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retire-ment plan without regard to annual caps on contributions if made within three years.

COMMENT. This relief is commonly granted by Congress in the wake of major disaster declarations, such as those made after a major hurricane.

The Act also waives all required minimum distributions for 2020, regardless of whether the taxpayer has been impacted by the pandemic.

Charitable ContributionsThe Act enhances tax incentives for making charitable contributions for the 2020 tax year. First, it allows an above-the-line deduction of up to $300 for charitable contributions made by individuals.

IMPACT. This allows an individual to claim a deduction for a charitable contribution, even if the individual does not itemize deductions.

Additionally, the percent-of-adjusted gross income (AGI) limitations are increased for all taxpayers as well as for specific types of contributions. For the 2020 tax year, individuals can claim an unlimited itemized deduc-tion for a charitable contribution, which is normally limited to 50 percent of AGI. In the case of corporations, the usual 10-percent-of-AGI limitation is increased to 25 percent for the 2020 tax year. Finally, the contribution of food inventory, the deduction for which is normally limited to 15 percent of AGI, is increased to 25 percent for the 2020 tax year.

Student Loans Paid by EmployersThe Act provides for an exclusion of up to $5,250 from income for payments of an employee’s education loans. In order for the exclusion to apply, the loan must have been incurred by the employee for the education of the employee (so, for example, the loan must not have been incurred to pay for the education of the employee’s child). The payment can be made to the employee or directly to the lender. The exclusion only applies for payments made by an employer after the date of enactment and before January 1, 2021.

COMMENT. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employee.

BUSINESS TAX RELIEFEmployee Retention CreditThe CARES Act grants eligible employers a credit against employment taxes equal to 50 percent of quali-fied wages paid to employees who are not working due to the employer’s full or partial cessation of business or a significant decline in gross receipts. The credit is available to be claimed on a quarterly basis, but the amount of wages, including health benefits, for which the credit can be claimed is limited to $10,000 in aggregate per employee for all quarters. The provision contains several requirements defining qualified wages, qualified employees, and qualified employers. The credit applies to wages paid after March 12, 2020, and before January 1, 2021.

COMMENT. This is very similar to the paid leave credits granted to employers under the Families First Coronavirus Response Act signed into law on March 18, 2020, with some changes to the requirements.

3CCHCPELink.com


Most significantly, neither the employee nor the employer have to be directly impacted by infection.

COMMENT. This is also similar to the employee retention credits Congress provides after major disas-ters, but with different requirements and limitations.

Payroll Tax Deferral

In order to free up employers’ cash flow and retain employ-ees during times of quarantine or shutdown, the CARES Act defers the payment of payroll taxes. Payroll taxes due from the period beginning on the date the CARES Act is signed into law and ending on December 31, 2020, are deferred. The 6.2 percent OASID portion of payroll taxes incurred by employers, and 50 percent of the equivalent payroll taxes incurred by self-employed persons qualify for the deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remainder due on December 31, 2022.

Net Operating LossesThe Act allows for a five-year carryback of net operating losses (NOLs) arising in 2018, 2019, or 2020 by a business. Businesses will be able to amend or modify tax returns for tax years dating back to 2013 in order to take advantage of the carryback. Under current law, only farming NOLs are allowed to be carried back, and the carryback is limited to two years.

COMMENT. The Tax Cuts and Jobs Act (TCJA) eliminated the carryback of NOLs for tax years ending after 2017 and allowed for the indefinite carry forward for NOLs. Prior to the TCJA, an NOL could be carried back two years, with longer carryback periods for NOLs arising from a casualty or declared disaster or farming losses.

The Act also eliminates loss limitation rules applicable to sole proprietors and passthrough entities to allow them to take advantage of the NOL carryback.

Additionally, the Act allows for NOLs arising before January 1, 2021, to fully offset income. Under current law, NOLs are limited to 80 percent of taxable income.

Minimum Tax CreditsThe TCJA eliminated the alternative minimum tax for cor-porations for tax years after 2017, but allowed corporations to claim a refundable portion of any unused minimum tax credits through 2021. The amount of the refundable credit is limited to 50 percent of any excess minimum tax in 2018 through 2020, before being fully refundable in 2021. The

Act accelerates the year for which a fully refundable credit can be claimed to 2019, and allows corporations to elect to claim the fully refundable minimum tax credits in 2018.

Business Interest Expense LimitationThe TCJA limited the amount of allowable deductions for business interest (regardless of the type of entity) for tax years beginning after 2017. The limitation is generally the amount of business interest income for the year plus 30 percent of the taxpayer’s adjusted taxable income for the year. The limitation does not apply to taxpayers with aver-age annual gross receipts for the prior three year below an inflation-adjusted amount. For 2020, this amount is $26 million or less.

The Act increases the limitation amount to 50 percent of the taxpayer’s adjusted taxable income for 2019 and 2020 (with a special allocation election required for partnerships for 2019). In calculating the limitation for 2020, the taxpayer may elect to use adjusted taxable income for 2019.

COMMENT. The option to use 2019 adjusted taxable income in calculating the limitation is meant to counteract the likelihood that incomes will not be higher in 2020 because of the economic environment, whereas 2019 was generally a very high revenue year for businesses.

Qualified Improvement Property

When Congress drafted the TCJA, it allowed for 100-percent bonus depreciation rules to apply to all MACRS property with a recovery period of 20 years or less. Before TCJA, qualified improvement property was depreciated as 39-year residential real property, unless it separately qualified as 15-year qualified leasehold improvement property, 15-year retail improvement prop-erty, or 15-year restaurant property. Congress eliminated the three separate categories of 15-year improvement properties with the intention of making all qualified improvement property 15-year property. However, it failed to do so, and as a result, qualified improvement property is depreciated as 39-year property and not qualified for bonus depreciation.

COMMENT. This is known in tax circles as the “retail glitch.” A technical amendment has long been promised and had been included in early drafts of several pieces of legislation since the TCJA became law in December 2017. However, it never made it into the final version of any piece of significant legislation voted on by either chamber of Congress.

DBove

Highlight


4 Tax Briefing—CARES Act

The CARES Act corrects this Congressional oversight by defining qualified improvement property as 15-year property, thus allowing 100 percent of improvements to be deducted in the year incurred. The change is made as if included in the TCJA and, thus, is effective for property acquired and placed in service after September 27, 2017.

IMPACT. The closures and quarantines related to the coronavirus/COVID-19 pandemic have been especially hard on small businesses, which includes restaurants and local retail stores. This technical correction allows any expenses incurred by owners to make improvements to the physical premises related to these businesses to be accelerated into the 2017 or 2018 tax year on an amended return or the 2019 tax year on a return due July 15, 2020.

Excise Tax ReliefThe Act also provides a temporary exception from alcohol excise taxes for alcohol for use in or contained in hand sani-tizer produced or directed by the Food and Drug Administra-tion related to the pandemic. The Act also suspends excise taxes on aviation and kerosene used in aviation fuel. The exception and suspensions are applicable to 2020 only.

ADDITIONAL PROVISIONSThe CARES Act is a massive Act, the majority of which does not have a tax impact. However, some smaller, but no less significant, provisions impacting federal tax are sprinkled outside of the tax-related division of the Act. These provisions include:

The exclusion from tax of any forgiven small business loans, mortgage obligations, or other loan obligations forgiven by the lender during the applicable period;A safe harbor from the definition of a high deductible health plan permitting telehealth services to be included, even though such services do not carry a deductible;The inclusion of over-the-counter menstrual products as qualified medical expenses for purposes of distribu-tions from health savings accounts and health flexible spending arrangements; Pension funding relief for failures to meet contribution requirements to defined benefit plans during 2020; Allowing certain charitable employers whose primary exempt purpose is providing services to mothers and children to use small employer charity pension plan rules.

april 2, 2020 - barclay group

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