Category Archives: CARES Act

The Pandemic’s Impact on South Jersey’s Economy: An Insider’s View​

Pandemic……and record DECLINE IN BANKRUPTCY filings.  Yes, as the title of an article in the Wall Street Journal in January read about 2020 “Commercial Chapter 11 Filings Rose 29%, While Personal Bankruptcies Dived.”  We debt relief/restructure practitioners have been following these numbers since the beginning of the Pandemic. 

From the end of March 2020 on, many were expecting a flood, better-yet a monsoon of bankruptcy filings, but the flood never came. Instead, we have seen the lowest number of filings in 35 years! What is going on?  Well, the short answer is that the stimulus packages worked at some level in keeping people employed and many business muddling along! Also, the closing of the courts, delays in foreclosures, almost automatic moratoria for mortgagors, abatements of rent and hold on evictions many posit have slowed the process. So, what is in store for 2021? I tend to lean, with hope, that with the funds coming into the economy through additional PPP funds, extensions of unemployment, extra dollars for individuals and business, perhaps business will reopen, begin getting all those on unemployment back to work and truly bring everyone into the economy without businesses and individuals being compelled by their circumstances to file bankruptcy.  Additionally, the federal government will need to do everything right to ensure that inflation does not “kick in.”  However, I fear that we may now be seeing the beginning of what will eventually be a wave of bankruptcy filings, not necessarily a title wave, but a wave nonetheless. I can just tell you this anecdotally.  As a bankruptcy trustee, I am assigned 45-50 cases approximately once a month to handle. Those numbers went way down during the last eight months.  My January hearings were again up to those numbers with many articulating the COVID-19 pandemic as the cause.  Earlier this month, the Atlantic City Press reported “the Atlantic City-Hammonton metro area, which basically encompasses all of Atlantic County, has been in the top three metro areas in the nation for unemployment rates and increases in unemployment during the pandemic. The other two topping that list were other big tourism and/or gaming sites: The greater Las Vegas area and Kahului-Wiluku-Lahaina in Hawaii.”​ From a business perspective, we have been working very hard to make deals with landlords or for landlords and many other creditors that are either in trouble or causing trouble. However, some of those attempts are blowing up as certain industries are not even able to pay their bills at reduced amounts and creditors are unwilling to take further cuts as their obligations to their own creditors are just too great. 

Stay tuned. I will be putting out a post once a month or perhaps more often, to keep you informed on current filings and the beginning of a uptick that we most certainly think will occur.

Questions? Let Doug know.

Douglas S. Stanger is a shareholder at Flaster Greenberg PC concentrating his practice in bankruptcy, corporate and real estate law. He has served on the United States Department of Justice Panel of Bankruptcy Trustees for 25 years and is an approved mediator for the Bankruptcy Court in the states of New Jersey, Pennsylvania and Delaware. Most recently, Doug was appointed by the U.S. Department of Justice as one of only ten subchapter V trustees in the State of New Jersey.

How to Make Filing Your 2020 Returns Less Taxing

How to Make Filing Your 2020 Returns Less Taxing

Unquestionably, 2020 was a year full of unforeseen challenges. As much as we may want to put last year completely behind us, we need to file our 2020 tax returns before completely letting go. Although we speak about the challenges and frustrations of the past twelve months broadly, a few specific events will present unusual tax considerations for some Americans.

Taxation of Unemployment Compensation Income

More than 25 million Americans became unemployed during the pandemic and relied on unemployment benefits. Unemployment benefits are includable in gross income and, therefore, are subject to tax. This may come as a surprise, especially to the thousands of Americans who applied for unemployment benefits for the first time this year. Withholding tax from one’s unemployment income is voluntary through the completion of a form referred to as a W-4V and submission to the agency paying the benefits. If their withholding amount is too low to cover their tax liability or if they did not authorize withholding, taxpayers can make quarterly estimated tax payments. Given the economic instability and uncertainty we are experiencing, many taxpayers relying on unemployment benefits are unlikely to have the financial wherewithal to withhold any portion of that income. Even worse, they may have no means available to pay the tax when due. If they were unaware of the tax impact when receiving unemployment benefits, they should be prepared for the unexpected tax now.

Home Offices

On the flip side of the employment coin, another tax quirk created by the COVID-19 pandemic comes in the form of working from home. Many taxpayers spent time working from home last year (and some of us still are!). Had this pandemic occurred before the 2017 enactment of the Tax Cuts and Jobs Act (“TCJA”), millions of Americans would be eligible for a deduction for expenses incurred creating and operating a home office. However, the TCJA limited deductions for home office expenses to those who are self-employed and whose home office areas are a “room or separately identifiable space” used “regularly and exclusively” for work. Thus those of us who have properly designated home offices as a result of the pandemic that might otherwise qualify, but receive W-2s as employees are ineligible for such deductions.

CARES Act

Similarly, many Americans received government aid in the form of stimulus checks through the CARES Act. These payments are tax-free and are not required to be included in gross income on one’s federal tax return. Rather, they are treated as advances of 2020 tax credits and must be reflected that way on our 2020 tax returns. Some tax professionals anticipate many taxpayers will have discarded or misplaced documentation related to those distributions, which, in turn, increases the likelihood that returns will be inaccurate, which may delay refunds. Additionally, some tax professionals have recommended that the IRS setting up an online portal for taxpayers to look up the exact amounts they received in government aid under the CARES Act to ensure their 1040s are accurate, but no such portal has been created as of the writing of this post. Thus, it is important for taxpayers to locate and organize their documentation relating to any stimulus check payments.

PPP Income

On top of these challenges presented to individuals filing their 2021 tax returns, some businesses face the uncertainty of whether business expenses paid for with loans received from the Paycheck Protection Program (PPP) will be wholly or partially deductible on their 2020 returns.  Under the PPP, certain small businesses whose operations were directly impacted by the COVID-19 pandemic were able to secure loans to fund specified expenses, including eligible payroll costs, payments on business mortgage interest payments, rent and utilities during a period of 8 or 24 weeks after disbursement. Borrowers may apply for forgiveness of these loans within 10 months of their issuance, to the extent they are used for these purposes in the year the expenses are incurred. It was unclear under the original CARES Act whether the expenses paid with the forgiven loan proceeds would be deductible. In December 2020, Congress passed the Consolidated Appropriations Act, which finally clarified that business expenses paid with forgiven PPP loans are, in fact, tax deductible. This act supersedes prior guidance from the IRS, issued as recently as November 2020. While this came as a welcomed holiday gift to many, there may be S corporation shareholders and partners in partnerships with a lump of coal thrown in; the benefit may be somewhat less timely than anticipated given the quirks of pass-through entity taxation, effectively deferring the tax benefit another year. 


Carefulness has always been key when completing a tax return, but even more so when filing returns for tax year 2020. Any taxpayer who received a stimulus check should start looking for that piece of paper now — tax time will be here before you know it! As the COVID-19 pandemic persists while we await widespread distribution of the vaccine, the IRS has emphasized the need for taxpayers to complete their tax returns from the safety of home, and provides a number of services to assist taxpayers in doing so.  If you encounter any legal issues regarding your taxes, Flaster Greenberg can help; give us a call.

For more information on any of the information contained in this post, contact Kelly Barry or any member of Flaster Greenberg’s Taxation Practice Group

Kelly Barry is a member of the firm’s Business and Corporate Department and Taxation Practice Group assisting clients in a wide range of corporate matters, including those involving transactional law, tax, and trusts and estates.  She can be reached at kelly.barry@flastergreenberg.com or 856.382.3305.

Pennsylvania’s Business Relief Efforts in the Wake of COVID-19

Pennsylvania State Capitol

In the past few weeks, the Commonwealth of Pennsylvania has put forth several relief efforts directed towards businesses in an effort to alleviate the strain caused by the outbreak of COVID-19 or coronavirus.

Governor Wolf’s Disaster Relief Order

On March 6th, Pennsylvania Governor Tom Wolf issued an Executive Order mandating business closures throughout the Commonwealth to mitigate the risk of spreading coronavirus, or his “Disaster Declaration Order.” As a part of that Order, the Governor allowed for greater flexibility in a variety of industries. For example, the Order allowed for greater flexibility in the application of state and federal motor carrier regulations to accommodate truck drivers involved in emergency activities during this time. Accordingly, the Governor directed the Commonwealth Department of Transportation to waive or suspend any laws, or federal or state regulations, related to the drivers of commercial vehicles.

Moreover, both Governor Wolf and Rachel Levine, MD, Secretary of Health, have ordered that life-sustaining businesses and services (as outlined in this list) may continue to maintain in-person operations, but that other non-essential businesses such as gyms, salons and spas, casinos, concert venues, theatres, bars, sporting event facilities, golf courses, and non-essential retail facilities like shopping malls (except for pharmacies or other health care facilities located therein) must shut down. Liquor stores were also ordered to shut down pursuant to the orders, though grocery stores with Pennsylvania Liquor Control Board licenses may still sell wine and beer. Restaurants are permitted to remain open for carry-out and delivery only. Enforcement actions against businesses that do not close their physical locations began at 8:00 a.m. on March 23rd.

Business Exemption Options

Businesses may seek a waiver or exemption to the closure order by using Pennsylvania’s Department of Community and Economic Development’s (DCED) Business Exemption Form. Among other things, the form asks how the business seeking the exemption meets the definition of “life-sustaining.” Furthermore, it asks whether the business has a plan to meet Center for Disease Control (CDC) recommended guidelines to maintain employee safety during the COVID-19 pandemic. Businesses seeking an exemption should be mindful of the CDC’s guidance on the limitation on the number of persons permitted to be in one work space, and be ready to answer the above questions. Once an exemption form has been submitted, decisions will be communicated by email. In making its decisions, the Commonwealth will seek to balance public health, safety, and the security of its industry supply chains supporting life-sustaining businesses.

Additional Resources for Business Relief

Businesses that do not wish to seek, or do not qualify for, a business exemption have other sources of financial relief available. For example, the Pennsylvania DCED offers working capital loans that could be of assistance to businesses impacted by COVID-19. DCED resources and information will be posted to its website as they become available.

The United States Small Business Administration (SBA), in addition to local funding partners, may also be a source of assistance for affected businesses. The SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they may be experiencing. These loans may be used to pay fixed debts, payroll, accounts payable, and other bills that are not being paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.

Moreover, the Commonwealth just created a portal for manufacturers, distributors, and other suppliers to upload information about supplies available for purchase so that the Commonwelath can efficiently procure these supplies for hospitals and other medical facilities across Pennsylvania. Notably, this includes any manufacturers that can shift their production to produce personal protective equipment (PPE) such as protective clothing, helmets, gloves, face shields, goggles, facemasks and/or respirators or other equipment designed to protect the wearer from injury or the spread of infection or illness (e.g., specialized sewing companies).

The Commonwealth has also decided that businesses that are temporarily closed due to COVID-19 will be granted Relief from Charges for any benefits received by a former employee who files for unemployment compensation, and their tax rates will not be increased because of COVID-19 related claims. Additionally, the Pennsylvania Department of Labor and Industry has programs to assist businesses impacted by COVID-19. The Shared Work Program, for example, can help keep employees attached to a business’s workplace by allowing an employer to temporarily reduce work hours rather than resorting to layoffs.

If a business has had to close temporarily, consider layoffs, or is financially at-risk for permanent closure, the Rapid Response Assistance Program is available to assist it with a variety of services and resources to help it. The Response Team is also available to assist employees. Moreover, the Commonwealth offers Local Assistance Partners so that businesses can contact them to discuss the impact of the coronavirus on their daily operations.

COVID-19 Working Capital Access Program

The COVID-19 Working Capital Access (CWCA) Program is administered by the Pennsylvania Industrial Development Authority (PIDA) and provides critical working capital financing to small businesses located within the Commonwealth that are adversely impacted by the COVID-19 outbreak. Importantly, there are no loan repayments required for the first 12 months.

All CWCA loan applications must be submitted through a Certified Economic Development Organization (CEDO). An eligible small business enterprise is a for-profit, limited liability company, partnership, proprietorship, or other legal business entity located in Pennsylvania, and having 100 or fewer full-time employees worldwide at the time of submission of the application. There will be a limit of $100,000 for each loan. The interest rate for such loans is 0%, except for agricultural producers, for whom the interest rate is 2%.

Philadelphia Small Business Relief Fund

The Philadelphia Small Business Relief Fund, jointly administered by the Department of Commerce (DOC) and the Philadelphia Industrial Development Corporation (PIDC), offers grants or zero-interest loans to Philadelphia small businesses impacted by the COVID-19 pandemic. The program aims to provide relief to small businesses in order to help them survive this crisis, retain as many employees as possible, help businesses avoid predatory lenders, and maintain the provision of goods and services for Philadelphia’s residents.

This is a three-tiered fund. Accordingly, the particular relief that a business qualifies for depends on its revenue level as follows:

  • Microenterprise Grants: Businesses are eligible for up to $5,000 per business for businesses with less than $500,000 in annual revenue.
  • Small Business Grants: Businesses are eligible for up to $25,000 per business for businesses with annual revenue between $500,000 and $3,000,000.
  • Small Business Zero-Interest Loans: Businesses are eligible for up to $100,000 per business for businesses with annual revenue between $3,000,000 and $5,000,000.

Businesses could have applied for all three tiers prior to Mayor Kenney’s announcement yesterday. Applications will be reviewed on a rolling basis once all materials are received and determinations should take about two weeks.

On Monday, March 30, Mayor Kenney announced that due to high demand and limited resources, the Philadelphia COVID-19 Small Business Relief Fund will not accept applications for the small business grants program or the small business zero interest loan program after 5:00 p.m. yesterday evening. Only applications for the microenterprise grant program, which provides $5,000 grants to small businesses, will be accepted after yesterday’s deadline.

Pennsylvania Industrial Development Authority

The Pennsylvania Industrial Development Authority’s currently putting together the Small Business First Fund to make $61,000,000 available for business assistance (see above). Funds can be used for working capital loans of up to $100,000 given to small businesses (and maybe nonprofits) who employ 100 or fewer people. Currently, the interest rates are set at 3% but the PIDA board has the authority to adjust the interest rates as low as 0%.

PIDA also provides low-interest loans and lines of credit for eligible businesses that create and retain full-time jobs for the development of industrial parks and/or multi-tenant facilities.

KIVA

Kiva is a nonprofit organization that gives entrepreneurs access to 0% interest small business loans through a crowdfunding platform.

FINANTA

FINANTA, short for FINANcing and Technical Assistance, is a nonprofit lending institution facilitating access to capital and/or consultation services for consumers, entrepreneurs, and first-time homebuyers in the Philadelphia region. FINANTA gives entrepreneurs affected by COVID-19, and other emergencies, loans that can range from $5,000 to $15,000 without closing fees. For more information about the loans or to apply, call 267-236-7030.

As businesses face the economic pressure caused by these uncertain times, they may be forced to make tough decisions to respond to these unprecedented challenges. If you or your client have any questions regarding the funds available, or how to weather this storm, you should consider contacting experienced legal counsel to assist you in this constantly changing area as soon as practical. Flaster Greenberg’s attorneys are available to discuss the available options at your convenience.

This blog post is part of Flaster Greenberg’s efforts to keep its clients and friends advised of the multitude of responses to the COVID-19 outbreak. The post can be found here and will be continually updated. If you have specific questions, or for more details on any of the above, please contact Krishna Jani, Doug Stanger, Damien Tancredi, or any member of Flaster Greenberg’s Corporateor Bankruptcy Departments.

COVID-19 RESOURCE PAGE

To serve as a central repository of information and contributions from Flaster Greenberg attorneys on legal developments during the COVID-19 crisis, we have launched a COVID-19 Resource page on our website. Feel free to check back frequently for Flaster Greenberg’s ongoing analyses of important legal updates that may affect you or your business.

CARES Act to Provide Needed Aid to Small Businesses Dealing with Uncertainty and Disruption

Shopping Mall

The “Coronavirus Aid, Relief, and Economic Security Act” was signed into law by the President on March 27th in an attempt to curtail the massive economic fallout that is likely to result from the near complete shutdown of American commerce amid the COVID-19 pandemic. This comprehensive bill provides financial resources that augment the individual states’ responses. This alert will explain some of the relief provided by the CARES Act that affect businesses grappling with these difficult times. It provides only a summary of the highlights of the Act and should generally apprise you of the programs available.

The CARES Act allocates an additional $349 billion to loans and grants through the Small Business Administration (SBA). For small and midsize businesses, the most significant result of the Act is to amend Section 7(a) of the Small Business Act to create the Paycheck Protection Program (PPP).  The PPP provides loans of up to two and a half times a borrower’s average monthly payroll expenses (over the last twelve months) in order to pay employee wages, benefits, insurance premiums, mortgage, rent, and utility payments. “Payroll expenses” include employee pay, leave (vacation, sick, parental, family, etc.), and health insurance and premiums, but is subject to limitations for high earning employees. This program is designed to encourage and incentivize businesses with less than 500 employees to retain their labor force. Eligibility standards focus on whether the business was operational before the crises, not its ability to repay. The CARES Act also waives the “credit elsewhere” test and no longer requires a personal guarantee for PPP loans. All PPP loans have a maximum interest rate of 4%, but as shown below, some or all of these loans may be forgiven. Furthermore, the CARES Act provides that the SBA will pay principal and interest on existing and new SBA loans for six months.

PPP loans are eligible for forgiveness upon meeting certain standards and this canceled indebtedness will not be recognized as income. The SBA will forgive the amount that the borrower spent during the first eight weeks after receiving funds on: (i) payroll costs as defined above; (ii) interest on existing mortgages (iii) payments of existing rents; and, (iv) payments of existing utility service. Since the CARES Act is attempting to prevent job losses, a borrower’s eligibility to have its loan forgiven is proportionally reduced by any reduction in employees compared to the prior year. A borrower’s loan forgiveness is also reduced if an employee’s pay is decreased beyond 25% of his or her previous year’s pay. However, if an employer has already laid off or reduced an employee’s pay, it can reinstate that employee prior to June 30, 2020 without suffering a reduction in forgiveness.

In addition to the PPP, the CARES Act expands the availability of Economic Injury Disaster Loans (EIDLs) and expands the business entities eligible to receive them.  The CARES Act waives the need for personal guarantees for EIDLs less than $200,000 and approval is based strictly on the applicant’s credit score. Any applicant for an EIDL can also request up to $10,000 in an Emergency Grant that the SBA must distribute within three days. The advance payment through the Emergency Grant may not need to repaid but must be used to: (i) pay sick leave to employees; (ii) maintain payroll; (iii) meet increased costs to obtain materials; (iv) make rent or mortgage payments; or (v) repay obligations that cannot be paid due to revenue losses. Emergency funds or EIDLs that convert to SBA loans through the PPP can be forgiven as stated above.

The Act also provides valuable tax credits of 50% of the first $10,000 of wages paid by employers to each employee during the crisis. To be eligible, an employer must have had its operations fully or partially suspended due to a shut-down order or had its gross receipts decline by more than 50% compared to the same quarter last year. There are different rules concerning what wages are qualified depending on the number of employees a particular business employs. In addition to the tax credit, an employer or self-employed individual can defer payment of the employer share of Social Security tax and allows such payments to be made over two years with half due by the end of 2021 and other half due at the end of 2022. Additionally, the CARES Act expands the ability of businesses to offset operating losses and retroactively apply them to previous years (carry-back NOLs).

In addition, the CARES Act provides for tax credits for employers who pay the required enhanced leave for employees affected by COVID-19. Employers can receive tax credits for up to $511 per day per employee when they pay employees under sick leave. Much more information regarding paid leave can be found in Adam Gersh’s three part employer’s guide: Part 1 | Part 2 | Part 3.

The CARES Act requires the SBA to promulgate rules promptly that should provide some more details on the available funds, process, and administration of these loans. Interested borrowers should contact the SBA here.  Additionally, funds are available at the state and local level and will be the topic of another Flaster Greenberg post in the near future.

Finally, the CARES Act expanded the number of businesses that can seek Chapter 11 bankruptcy relief under the recently enacted Small Business Reorganization Act of 2019 (SBRA). For the next year, the SBRA is available to businesses that owe less than $7.5 million in total debt, which is nearly three times higher than the original SBRA limitation. The SBRA, like a more traditional chapter 11 bankruptcy, allows a debtor to reorganize its balance sheet with the intention of setting forth a bankruptcy plan that will allow the company to operate profitably in the future. The advantage of the SBRA is that it is designed to provide a streamlined process, reduce costs, and provider a quicker exit from bankruptcy as compared to the traditional Chapter 11 bankruptcy where its cost can be a significant barrier to entry. Although businesses rarely want to consider bankruptcy, it can prove to a significant step toward regaining solvency and emerging from this crisis.

If your company is one of the millions struggling with this disruption, it should consider whether it can utilize the funds available in order to meet the short-term liquidity crunch. As always, Flaster Greenberg’s attorneys are available to assist you and we are here to help your company through this difficult time. The next section contains important links that can provide assistance to businesses.

COVID-19 Resources

tancredi_damien_0082_f_web
Damien Nicholas Tancredi
 is a member of Flaster Greenberg’s Bankruptcy, Financial Restructuring and Risk Management Department focusing his practice on bankruptcy, specifically representing unsecured creditors and creditors’ committees, chapter 7 trustees and chapter 11 debtors. He also represents businesses in commercial litigation and corporate matters in Delaware, Philadelphia and South Jersey. He is admitted to practice law in Pennsylvania, Delaware and New Jersey as well as the United States District Court for the districts of Eastern Pennsylvania, Delaware, and New Jersey. He can be reached at damien.tancredi@flastergreenberg.com or 215.587.5675.

 

%d bloggers like this: