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The Higher Education Emergency Relief Fund (HEERF): Guidelines

04.28.20

Editor's note: Read this if you are a leader in higher education.

The Department of Education has released guidance to colleges and universities on how the CARES Act grants to institutions, under the Higher Education Emergency Relief Fund (HEERF), may be used. The guidance comes in the form of answers to frequently asked questions, which we recommend institutions read before accepting the funds. Some key answers included in the document:

  1. A school has to participate in the HEERF funding to be used for grants to students to get the institutional share.
  2. Schools can use these funds to cover the costs of refunds for room and board provided as a result of campus closure.
  3. These funds can be used to make additional emergency financial aid grants to students impacted by campus closure.

We urge schools to retain supporting documentation of the proper use of these funds to allow for a compliance audit, should that be required. 

Questions?
Please contact Renee Bishop, Sarah Belliveau, or Mark LaPrade. We’re here to help.

Related Industries

Related Professionals

  • Emily Parker
    Senior Manager
    Education, Healthcare, Not-For-Profit
    T 207.991.5182

BerryDunn’s Healthcare/Not-for-Profit Practice Group members have been working closely with our clients as they navigate the effect the COVID-19 pandemic will have on their ability to sustain and advance their missions.

We have collected several of the questions we received, and the answers provided, so that you may also benefit from this information. We will be updating our COVID-19 Resources page regularly. If you have a question you would like to have answered, please contact Sarah Belliveau, Not-for-Profit Practice Area leader, at sbelliveau@berrydunn.com.

The following questions and answers have been compiled into categories: stabilization, cash flow, financial reporting, endowments and investments, employee benefits, and additional considerations.

STABILIZATION
Q: Is all relief focused on small to mid-size organizations? What can larger nonprofit organizations participate in for relief?
A:

We have learned that there is an as-yet-to-be-defined loan program for mid-sized employers between 500-10,000 employees. You can find information in the Loans Available for Nonprofits section (link below) of  the CARES Act as well as on the Independent Sector CARES Act web page, which will be updated regularly.

Q: Should I perform financial modeling so I can understand the impact this will have on my organization? Things are moving so fast, how do I know what federal programs are available to provide assistance?
A:

The first step in developing a short-term model to navigate the next few months is to gain an understanding of the programs available to provide assistance. These resources summarize some information about available programs:

Loans Available for Nonprofits in the CARES Act
Families First Coronavirus Response Act (FFCRA): FAQs for Businesses
CARES Act Tax Provisions for Not-for-Profit Organizations

The next step is to develop scenarios ranging from best case to worst case to analyze the potential impact of revenue and/or cost reductions on the organization. Modeling the various options available to you will help to determine which program is best for your organization. Each program achieves a different objective – for instance:

  • The Paycheck Protection Program can assist in retaining employees in the short term.
  • The Emergency Economic Injury Grants are helpful in covering a small immediate liquidity need.
  • The Small Business Debt Relief Program provides aid to those concerned with making SBA loan payments.

Additionally, consider non-federal options, such as discussing short-term deferrals with your current bank.

Q: How should I create a financial forecast/model for the next year?
A:

If you have the benefit of waiting, this is likely a time period in which it makes sense to delay significant in-depth forecasting efforts, particularly if your business environment is complicated or subject to significantly volatility as a result of recent events. The concern with beginning to model for future periods, outside of the next three-to-six months, is that you’ll be using information that is incomplete and ever-changing. This could lead to snap judgments that are short-term in nature and detrimental to long-term planning and success of your organization. 

With that said, we recognize that delaying this analysis will be unsettling to many CFOs and business managers who need to have a strategy moving forward. In developing this model for next year, consider the following elements of a strong model:

  1. Flexible and dynamic – Allow room for the model to adapt as more information is available and as additional insight is requested by your constituents (board members, department heads, lenders, etc.).
  2. Prioritize – Start with your big-ticket items. These should be the items that drive results for the organization. Determine what your top two to three revenue and expense categories are and focus on wrapping your arms around the future of those. From there, look for other revenue and expense sources that show correlation with one of the big two to three. Using a dynamic model, these should be automatically updated when assumptions on correlated items change. Don’t waste time on items that likely don’t impact decision making. Finally, build consensus on baseline assumptions, whether it be through management or accounting team, the board, or finance committee.
  3. Stress-test – Provide for the reality that your assumptions, and thus model, will be wrong. Develop scenarios that run from best-case to worst-case. Be honest with your assumptions.
  4. Identify levers – As you complete stress-testing, identify your action plan under different circumstances. What are expenditures that can be deferred in a worst-case scenario? What does staffing look like at various levels?
  5. Cash is king – The focus on forecasting and modeling is often on the net income of the organization and the cash flows generated. In a time such as this, the exercise is likely to focus on future liquidity. Remember to consider your non-income and expense items that impact cash flow, such as principal payments on debt service, planned additions to property & equipment, receipts on pledge payments, and others.  
CASH FLOW
Q: How can I alleviate cash flow strain in the near term?
A:

While the House and Senate have reacted quickly to bring needed relief to individuals and businesses across the country, the reality for most is that more will need to be done to stabilize. Operationally, obvious responses in the short term should be to eliminate all nonessential purchasing and maximize the billing and collection functions in accounts receivable. Another option is to utilize or increase an existing line of credit, or establish a new line of credit, to alleviate short term cash flow shortfalls. Organizations with investment portfolios can consider the prudence of increasing the spending draw on those funds. Rather than making a few drastic changes, organizations should take a multi-faceted approach to reduce the strain on cash flow while protecting the long term sustainability of the mission.

Q: How can I increase my organization’s reach to help with disaster relief? If we establish a special purpose fund, what should my organization be thinking about?
A:

Many organizations are looking for ways to increase their direct impact and give funding to individuals or organizations they may not have historically supported. For those who are want to expand their grant or gift making or want to establish a disaster relief fund, there are things to consider when doing so to help protect the organization. The nonprofit experts at Hemenway & Barnes share their thoughts on just how to do that.

FINANCIAL REPORTING
Q: What accounting standards have been delayed or are in the process of being delayed?
A:

FASB:
The $2.2 trillion stimulus package includes a provision that would allow banks the temporary option to delay compliance with the current expected credit losses (CECL) accounting standard. This would be delayed until the earlier end of the fiscal year or the end of the coronavirus national emergency.

GASB:
On March 26, 2020, the Governmental Accounting Standards Board (GASB) announced it has added a project to its current technical agenda to consider postponing all Statement and Implementation Guide provisions with an effective date that begins on or after reporting periods beginning after June 15, 2018. The GASB has received numerous requests from state and local government officials and public accounting firms regarding postponing the upcoming effective dates of pronouncements as these state and local government offices are closed and officials do not have access to the information needed to implement the Statements. Most notably this would include Statement No. 84, Fiduciary Activities, and Statement No. 87, Leases.

The Board plans to consider an Exposure Draft for issuance in April and finalize the guidance in May 2020.

ENDOWMENTS AND INVESTMENTS 
Q: What should I consider with regard to endowments?
A:

Many nonprofits with endowments are considering ways to balance an increased reliance on their investment portfolios with the responsibility to protect and preserve the spending power of donor-restricted gifts. Some things to think about include the existence (or absence) of true restrictions, spending variations under the Uniform Prudent Management of Institutional Funds Act (UPMIFA) applicable in your state, borrowing from an endowment, or requesting from the donor the release of restrictions. All need to be balanced with the intended duration and preservation of the endowment fund. Hemenway & Barnes shares their thoughts relative to the utilization of endowments during this time of need.

EMPLOYEE BENEFITS
Q: We are going to suspend our retirement plan match through June 30, 2020 and I picked a start date of April 1st. What we need help with is our bi-weekly payroll (which is for HOURLY employees). Their next pay date is April 3rd, for time worked through March 28th. Time worked March 29-31 would be paid on April 17th. How should we handle the match during this period for the hourly employees?
A:

The key for determining what to include for the matching calculation is when it is paid, not when it was earned. If the amendment is effective April 1st, then any amounts paid after April 1st would not have matching contributions calculated. This means that the amounts paid on April 3rd would not have any matching contributions calculated.

Q: Can you please provide guidance on the Families First Coronavirus Response Act (FFCRA) and how it may impact my organization?
A:

On March 30th, BerryDunn published a blog post to help answer your questions around the FFCRA.

If you have additional questions, please contact one of our Employee Benefit Plan professionals

ADDITIONAL CONSIDERATIONS
Q: I heard there was going to be an incentive for charitable giving in the new act. What's that all about?
A:

According to Sections 2204 and 2205 of the CARES Act:

  • Up to $300 of charitable contributions can be taken as a deduction in calculating adjusted gross income (AGI) for the 2020 tax year. This will provide a tax benefit even to those who do not itemize.
  • For the 2020 tax year, the tax cap has been lifted for:
    • Individuals-from 60% of AGI to 100%
    • Corporations-annual limit is raised from 10% to 25% (for food donations this is raised from 15% to 25%)
Q: Have you heard if the May 15th tax deadline will be extended?
A:

Unfortunately, we have not heard. As of April 6th, the deadline has not been extended.

Q: Could you please summarize for me the tax provisions in the CARES Act that you think are most applicable to not-for-profits?
A: Absolutely! Our not-for-profit tax professionals have compiled this document, which provides a high-level outline of tax provisions in the CARES Act that we believe would be of interest to our clients.

We are here to help
Please contact the BerryDunn not-for-profit team if you have any questions, or would like to discuss your specific situation.

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COVID-19 FAQs—Not-for-Profit Edition

This blog is the first in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with ERISA requirements.

On Labor Day, 1974, President Gerald Ford signed the Employee Retirement Income Security Act, commonly known as ERISA, into law. Prior to ERISA, employee pensions had scant protections under the law, a problem made clear when the Studebaker automobile company closed its South Bend, Indiana production plant in 1963. Upon the plant’s closing, some 4,000 employees—whose average age was 52 and average length of service with the company was 23 years—received approximately 15 cents for each dollar of benefit they were owed. Nearly 3,000 additional employees, all of whom had less than 10 years of service with the company, received nothing.

A decade later, ERISA established statutory requirements to preserve and protect the rights of employees to their pensions upon retirement. Among other things, ERISA defines what a plan fiduciary is and sets standards for their conduct.

Who is—and who isn’t—a plan fiduciary?
ERISA defines a fiduciary as a person who:

  1. Exercises discretionary authority or control over the management of an employee benefit plan or the disposition of its assets,
  2. Gives investment advice about plan funds or property for a fee or compensation or has the authority to do so,
  3. Has discretionary authority or responsibility in plan administration, or
  4. Is designated by a named fiduciary to carry out fiduciary responsibility. (ERISA requires the naming of one or more fiduciaries to be responsible for managing the plan's administration, usually a plan administrator or administrative committee, though the plan administrator may engage others to perform some administrative duties).

If you’re still unsure about exactly who is and isn’t a plan fiduciary, don’t worry, you’re not alone. Disagreements over whether or not a person acting in a certain capacity and in a specific situation is a fiduciary have sometimes required legal proceedings to resolve them. Here are some real-world examples.

Employers who maintain employee benefit plans are typically considered fiduciaries by virtue of being named fiduciaries or by acting as a functional fiduciary. Accordingly, employer decisions on how to execute the intent of the plan are subject to ERISA’s fiduciary standards.

Similarly, based on case law, lawyers and consultants who effectually manage an employee benefit plan are also generally considered fiduciaries.

A person or company that performs purely administrative duties within the framework, rules, and procedures established by others is not a fiduciary. Examples of such duties include collecting contributions, maintaining participants' service and employment records, calculating benefits, processing claims, and preparing government reports and employee communications.

What are a fiduciary’s responsibilities?
ERISA requires fiduciaries to discharge their duties solely in the interest of plan participants and beneficiaries, and for the exclusive purpose of providing benefits for them and defraying reasonable plan administrative expenses. Specifically, fiduciaries must perform their duties as follows:

  1. With the care, skill, prudence, and diligence of a prudent person under the circumstances;
  2. In accordance with plan documents and instruments, insofar as they are consistent with the provisions of ERISA; and
  3. By diversifying plan investments so as to minimize risk of loss under the circumstances, unless it is clearly prudent not to do so.

A fiduciary is personally liable to the plan for losses resulting from a breach of their fiduciary responsibility, and must restore to the plan any profits realized on misuse of plan assets. Not only is a fiduciary liable for their own breaches, but also if they have knowledge of another fiduciary's breach and either conceals it or does not make reasonable efforts to remedy it.

ERISA provides for a mandatory civil penalty against a fiduciary who breaches a fiduciary responsibility under ERISA or commits a violation, or against any other person who knowingly participates in such breach or violation. That penalty is equal to 20 percent of the "applicable recovery amount" paid pursuant to any settlement agreement with ERISA or ordered by a court to be paid in a judicial proceeding instituted by ERISA.

ERISA also permits a civil action to be brought by a participant, beneficiary, or other fiduciary against a fiduciary for a breach of duty. ERISA allows participants to bring suit to recover losses from fiduciary breaches that impair the value of the plan assets held in their individual accounts, even if the financial solvency of the entire plan is not threatened by the alleged fiduciary breach. Courts may require other appropriate relief, including removal of the fiduciary.

Over the coming months, we’ll share a series of blogs for employee benefit plan fiduciaries, covering everything from common terminology to best practices for plan documentation, suggestions for navigating fiduciary risks, and more.

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What's in a name? A lot, if you manage a benefit plan.

Read this if you are a business owner or interested in upcoming changes to current tax law.

As Joe Biden prepares to be inaugurated as the 46th President of the United States, and Congress is now controlled by Democrats, his tax policy takes center stage.

Although the Democrats hold the presidency and both houses of Congress for the next two years, any changes in tax law may still have to be passed through budget reconciliation, because 60 votes in the Senate generally are needed to avoid that process. Both in 2017 and 2001, passing tax legislation through reconciliation meant that most of the changes were not permanent; that is, they expired within the 10-year budget window. Here is a comparison of current tax law with Biden’s proposed tax plan.

Current Tax Law
(TCJA–present)
Biden’s stated goals
Corporate tax rates and AMT

Corporations have a flat 21% tax rate and no corporate alternative minimum tax (AMT), which were both changed by the TCJA.

These do not expire.

Biden would raise the flat rate to the pre-TCJA level of 28% and reinstate the corporate AMT, requiring corporations to pay the greater of their regular corporate income tax or the 15% minimum tax (while still allowing for net operating loss (NOL) and foreign tax credits).

Capital gains and Qualified Dividend Income

The top tax rate is 20% for income over $441,450 for individuals and $496,600 for married filing jointly. There is an additional 3.8% net investment income tax.

Biden would eliminate breaks for long-term capital gains and dividends for income above $1 million. Instead, these would be taxed at ordinary rates.

Payroll taxes

The 12.4% payroll tax is divided evenly between employers and employees and applies to the first $137,700 of an individual’s income (scheduled to go up to $142,400 in 2020). There is also a 2.9% Medicare Tax which is split equally between the employer and the employee with no income limit.

Biden would maintain the 12.4% tax split between employers and employees and keep the $142,400 cap but would institute the tax on earned income above $400,000. The gap between the two wage levels would gradually close with annual inflationary increases.

International taxes (GILTI, offshoring)

GILTI (Global Intangible Low-Tax Income): Established by the TCJA, U.S. multinationals are required to pay a foreign tax rate of between 10.5% and 13.125%.

A scheduled increase in the effective rate to 16.406% is scheduled to begin in 2026.

Offshoring taxes: The TCJA includes a tax deduction for corporations that manufacture in the U.S. and sell overseas.

GILTI: Biden would double the tax rate to 21% and assess a minimum tax on a country-by-country basis.

Offshoring taxes: Biden would establish a 10% penalty surtax on profits for goods and services manufactured offshore and a 10% advanceable “Made in America” tax credit to create U.S. manufacturing jobs. Biden would also close offshoring tax loopholes in the TCJA.

Estate taxes

The estate tax exemption for 2020 is $11,580,000. Transfers of appreciated property at death get a step-up in basis.

The exemption is scheduled to revert to pre-TCJA levels.

Biden would return the estate tax to 2009 levels, eliminate the current step-up in basis on inherited assets, and eliminate the step-up at death provision for inherited property passed along by the decedent.

Individual tax rates

The top marginal rate is 37% for income over $518,400 for individuals and $622,050 for married filing jointly. This was lowered from 39.6% pre-TCJA.

Biden would restore the 39.6% rate for taxable income above $400,000. This represents only the top rate.

Individual tax credits

Currently, individuals can claim a maximum of $2,000 Child Tax Credit (CTC) plus a $500 dependent credit.

Individuals may claim a maximum dependent care credit of $600 ($1,200 for two or more children).

The CTC is scheduled to revert to pre-TCJA levels ($1,000) after 2025.

Biden would expand the CTC to $3,000 for children age 17 and under and offer a $600 bonus for children age 6 and under. It would also be fully refundable.

He has also proposed increasing the child and dependent care tax credit to $8,000 ($16,000 for two or more children), and he has proposed a new tax credit of up to $5,000 for informal caregivers.

Separately, Biden has also proposed a $15,000 tax credit for first-time homebuyers.

Qualified Business Income Deduction under Section 199A

As previously discussed, many businesses qualify for a 20% qualified business income tax deduction lowering the effective rate of tax for S corporation shareholders and partners in partnerships to 29.6% for qualifying businesses.

Biden would phase out the tax benefits associated with the qualified business income deduction for those making more than $400,000 annually.

Education

Forgiven student loan debt is included in taxable income.

There is no tax credit for contributions to state-authorized organizations that sponsor scholarships.

Biden would exclude forgiven student loan debt from taxable income.

Small businesses

There are current tax credits for some of the costs to start a retirement plan.

Biden would offer tax credits for businesses that adopt a retirement savings plan and offer most workers without a pension or 401(k) access to an “automatic 401(k)”.

Itemized deductions

For 2020, the standard deduction is $12,400 for single/married filing separately and $24,800 for married filing jointly.

After 2025, the standard deduction is scheduled to revert to pre-TCJA amounts, or $6,350 for single /married filing separately and $12,700 for married filing jointly.

The TCJA suspended the personal exemption and most individual deductions through 2025.

It also capped the SALT deduction at $10,000, which will remain in place until 2025, unless repealed.

Biden would enact a provision that would cap the tax benefit of itemized deductions at 28%.

SALT cap: Senate minority leader Charles Schumer has pledged to repeal the cap should Biden win in November (the House of Representatives has already passed legislation to repeal the SALT cap).

Opportunity Zones

Biden has proposed incentivizing - opportunity zone funds to partner with community organizations and have the Treasury Department review the program’s regulations of the tax incentives. He would also increase reporting and public disclosure requirements.
Alternative energy Biden would expand renewable energy tax credits and credits for residential energy efficiency and restore the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit.


If you have questions about your specific situation, please contact us. We’re here to help.

Article
Biden's tax plan and what may change from current tax law

Read this if you are a community bank.

On December 1, 2020, the Federal Deposit Insurance Corporation (FDIC) issued its third quarter 2020 Quarterly Banking Profile. The report provides financial information based on call reports filed by 5,033 FDIC-insured commercial banks and savings institutions. The report also contains a section specific to community-bank performance based on the financial information of 4,590 FDIC-insured community banks. Here are some highlights from the community bank section of the report:

  • The community bank sector experienced a $659.7 million increase in quarterly net income from a year prior, despite a 116.6% increase in provision expense and continued net interest margin (NIM) compression. This increase was mainly due to loan sales, which were up 154.2% from 2019. Year-over-year, net income increased 10%.
  • Provision expense decreased 32.3% from second quarter 2020 to $1.6 billion. That said, year-to-date provision expense increased 194.3% compared to 2019 year-to-date.
  • NIM declined 41 basis points from a year prior to a record low of 3.27% (on an annualized basis). 
  • Net operating revenue increased by $2.8 billion from third quarter 2019, a 12.1% increase. This increase was attributable to higher revenue from loan sales and an increase in net interest income mainly due to higher interest income from commercial and industrial (C&I) loans (up 14.8%) and a decrease in interest expense (down 36.8%).
  • Average funding costs declined for the fourth consecutive quarter to 0.53%.
  • Growth in total loans and leases was stagnant from second quarter 2020, growing by only 1%. However, total loans and leases increased by 13.4% from third quarter 2019. This increase was mainly due to C&I lending, which was up 71%. This growth in C&I lending was mainly comprised of Paycheck Protection Program loans originated in the second quarter.
  • The noncurrent rate (loans 90 days or more past due or in nonaccrual status) remained unchanged at 0.80% from second quarter 2020. That being said, noncurrent balances were up $1.6 billion in total from third quarter 2019. This year-over-year increase was mainly attributable to increases in noncurrent nonfarm nonresidential, C&I, and farm loan balances.
  • Net charge-offs decreased 22.1% year-over-year and currently stand at 0.10%.
  • Total deposit growth since second quarter 2020 was modest at 1.8%. However, total deposits compared to third quarter 2019 were up 16.7%.
  • The number of community banks declined by 34 to 4,590 from second quarter 2020. This change included one new community bank, three banks transitioning from non-community to community banks, eight banks transitioning from community to non-community banks, 29 community bank mergers or consolidations, and one community bank self-liquidation.

Community banks have been resilient and weathered the 2020 storm, as evidenced by an increase in year-over-year net income of 10%. However, tightening NIMs will force community banks to find creative ways to increase their NIM, grow their earning asset base, and identify ways to increase non-interest income to maintain current net income levels. 

Much uncertainty still exists. For instance, although significant charge-offs have not yet materialized, the financial picture for many borrowers remains uncertain, and payment deferrals have made some credit quality indicators, such as past due status, less reliable. The ability of community banks to maintain relationships with their borrowers and remain apprised of the results of their borrowers’ operations has never been more important. 

Despite the turbulence caused by the pandemic, there are many positive takeaways, and community banks have proven their resilience. Previous investments in technology, including customer facing solutions and internal communication tools, have saved time and money. As the pandemic forced many banks to move away from paper-centric processes, the resulting efficiencies of digitizing these processes will last long after the pandemic. 

If you have questions about your specific situation, please don’t hesitate to contact BerryDunn’s Financial Services team. We’re here to help.
 

Article
FDIC issues its third quarter 2020 banking profile

Read this if you are a construction company.

I am pleased to introduce 2020 Tax Planning Opportunities: CARES Act, published in conjunction with CICPAC (Construction Industry CPAs-Consultants Association) by a national group of tax professionals focused on the construction industry. BerryDunn is proud to be one of CICPAC’s 65 member firms across the US, and one of only two in New England.

Within the document you’ll find an abundance of useful insights on the following topics and more related to the Coronavirus Aid, Relief and Economic Security (CARES) Act:

  • Paycheck Protection Program (PPP) loans
  • Net operating losses and excess business loss limitations
  • Qualified Improvement Property (QIP)
  • Payroll cash flow opportunities and employer tax credits

Every business has been impacted by COVID-19 in some form. The CARES Act offers opportunities galore for virtually every business. Now, perhaps more than ever, it’s time to work closely with your BerryDunn tax professional to ensure recovery through this difficult time. 

Read the entire document

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2020 tax planning opportunities: CARES Act whitepaper available now

Read this if your facility or organization has received provider relief funds.

The rules over the use of the provider relief funds (PRF) have been in a constant state of flux since the funds started to show up in your bank accounts back in April. Here is a summary of where we are as of November 30, 2020 with allowable uses of the funds.
 
The most recent Post-Payment Notice of Reporting Requirements is dated November 2, 2020. In accordance with the notice, PRF may be used for two purposes:

  1. Healthcare-related expenses attributable to coronavirus that another source has not reimbursed and is not obligated to reimburse
  2. Lost revenue, up to the amount of the difference between 2019 and 2020 actual patient care revenue

The Department of Health and Human Services (HHS) has issued FAQs as recently as November 18, 2020.  The FAQs include the following clarifications on the allowable uses:

Healthcare related expenses attributable to the coronavirus

  1. PRF may be used for the marginal increased expenses or incremental expenses related to coronavirus.
  2. Expenses cannot be reimbursed by another source or another source cannot be obligated to reimburse the expense.
  3. Other sources include, but are not limited to, direct patient billing, commercial insurance, Medicare/Medicaid/Children’s Health Insurance Program (CHIP), or other funds received from the Federal Emergency Management Agency (FEMA), the Provider Relief Fund COVID-19 Claims Reimbursement to Health Care Providers and Facilities for Testing, Treatment, and Vaccine Administration for the Uninsured, and the Small Business Administration (SBA) and Department of Treasury’s Paycheck Protection Program (PPP). This would also include any state and federal grants received as a result of the coronavirus.
  4. Providers should apply reasonable assumptions when estimating the portion of costs that are reimbursed from other sources.
  5. The examples in the FAQs for increased cost of an office visit and patient billing seem to point to only supplemental coronavirus related reimbursement needing to be offset against the increased expense.
  6. PRF may be used for the full cost of equipment or facility projects if the purchase was directly related to preventing, preparing for and responding to the coronavirus; however, if you claim the full cost, you cannot also claim the depreciation for any items capitalized.
  7. PRF cannot be used to pay salaries at a rate in excess of Executive Level II which is currently set at $197,300.

Lost revenues attributable to the coronavirus

  1. Lost revenues attributable to coronavirus are calculated based upon a calendar year comparison of 2019 to 2020 actual revenue/net charges from patient care (prior to netting with expenses).
  2. Any unexpended PRF at 12/31/20 is then eligible for use through June 30, 2021 and calculated lost revenues in 2021 are compared to January to June 2019.
  3. Reported patient care revenue is net of uncollectible patient service revenue recognized as bad debts and includes 340B contract pharmacy revenue.
  4. This comparison is cumulative, for example, if your net income improves in Q4, it will reduce lost revenues from Q2.
  5. Retroactive cost report settlements or other payments received that are not related to care provided in 2019 or 2020 can be excluded from the calculation.

Whether you are tracking expenses or lost revenues, the accounting treatment for both is to be consistent with your normal basis of accounting (cash or accrual).
 
As a reminder, the first reporting period (through December 31, 2020) is due February 15, 2021. The reporting portal is supposed to open January 15, 2021. Any unexpended PRF at December 31, 2020 can be used from January 1, 2021 through June 30, 2021, with final reporting due July 31, 2021.

The guidance continues to change rapidly and new FAQs are issued each week. Please check back here for any updates, or contact Mary Dowes for more information.

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Provider relief funds: Allowable uses 

Read this if you are an employee benefit plan fiduciary.

The COVID-19 pandemic has challenged individuals and organizations to continue operating during a time where face-to-face interaction may not be plausible, and access to organizational resources may be restricted. However, life has not stopped, and participants in your employee benefit plan may continue to make important decisions based on their financial needs. This article looks at distributions from your plan, specifically focusing on required minimum distributions (RMD) and coronavirus-related distributions.

Required minimum distributions

If an employee benefit plan is subject to the RMD rules of Code Section 401(a)(9), then distributions of a participant’s accrued benefits must commence April 1 of the calendar year following the later of 1) the participant attaining age 70½, or 2) the participant’s severance from employment. Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, RMDs have been temporarily waived for retirement plans for 2020. This change applies to direct contribution plans, such as 401(k), 403(b), 457(b) plans, and IRAs. In addition, RMDs were waived for IRA owners who turned 70½ in 2019 and were required to take an RMD by April 1, 2020 and have not yet done so. Note: the waiver will not alter a participant’s required beginning date for purposes of applying the minimum distribution rules in future periods.

Coronavirus-related distributions

Under section 2202 of the CARES Act, qualified participants who are diagnosed with coronavirus, whose spouse or dependent is diagnosed with coronavirus, or who experience adverse financial consequences due to certain virus-related events including quarantine, furlough, layoff, having hours reduced, or losing child care are eligible to receive a coronavirus-related distribution.

These distributions are considered coronavirus-related distributions if the participant or his/her spouse or dependent has experienced adverse effects noted above due to the coronavirus, the distributions do not exceed $100,000 in the aggregate, and the distributions were taken on or after January 1, 2020 and on or before December 30, 2020.  

Such distributions are not subject to the 10% penalty tax under Internal Revenue Code (IRC) § 72(t), and participants have the option of including their distributions in income ratably over a three year period, or the entire amount, starting in the year the distribution was received. Such distributions are exempt from the IRC § 402(f) notice requirement, which explains rollover rules, as well as the effects of rolling a distribution to a qualifying IRA and the effects of not rolling it over. Also, participants can be exempt from owing federal taxes by repaying the coronavirus-related distribution. 

Participants receiving this distribution have a three-year window, starting on the distribution date, to contribute up to the full amount of the distribution to an eligible retirement plan as if the contribution were a timely rollover of an eligible rollover distribution. So, if a participant were to include the distribution amount ratably over the three-year period (2020-2022), and the full amount of the distribution was repaid to an eligible retirement plan in 2022, the participant may file amended federal income tax returns for 2020 and 2021 to claim a refund for taxes paid on the income included from the distributions. The participant will not be required to include any amount in income in 2022. We recommend the plan sponsor maintain documentation supporting the participant was eligible to receive the coronavirus-related distribution. 

There is much uncertainty due to the COVID-19 pandemic. A result of this uncertainty has been changes to guidance and treatment of plan transactions, which has forced many of our clients to review and alter their control environments. We have provided our current understanding of the guidance the IRS has provided for the treatment surrounding distributions, specifically RMDs and coronavirus-related distributions. If you and your team have any additional questions specific to your organization or plan, please contact us

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Impacts of the CARES Act on employee benefit plan distributions

Read this if you are an engineering or architecture firm working with government agencies reimbursing overhead established in an overhead rate schedule based on direct labor.

We are approaching the end of 2020 and we still don’t have final and authoritative guidance from the U.S. Department of Treasury and the Office of Management and Budget about how to treat the PPP loan forgiveness. Will the Federal Acquisition Regulation, Part 31.201-5, Credits, apply and drastically diminish overhead rates for 2020? Will any credit follow the timing of legal forgiveness? Will you be required to offset subsequent forgiveness against 2020 expenses? 

The lobbyists are hard at work fighting any offset. Will they gain legislative support or will a compromise be negotiated? In the face of so many unknowns, we encourage companies to plan for potential outcomes of this unique situation in order to avoid unwanted surprises in the years to come. What can be done now? Let’s first explore trends we’ve observed for A/E firms for this year:

  • Certain costs, such as travel, meals, seminars and overall office expenses, are lower in 2020 with many employees working from home. 
  • Employees are traveling less and are not participating in networking events; they are focusing more of their time on chargeable work. As a result, utilization rates are higher in 2020 compared to recent years. A 1% change in utilization generally results in an approximate 4% directional change in overhead rate. 

These lower spending, higher chargeability trends are pushing overhead rates down considerably for 2020 and, likely too, for 2021. Depending on the type and the length of projects contracted to include those overhead rates, resulting profitability will also be lower for a few more years when indirect costs increase to normal levels. Proper planning is extremely important in this situation. Here are some questions to ask when considering your options:

  • Are there opportunities to negotiate the project price or terms so project profitability is maintained? Can you negotiate higher labor rates or a fixed overhead rate? 
  • If there isn’t any room for negotiations on projects using actual audited overhead rates, should your company focus business development efforts on bidding on or seeking and forming strategic partnerships to pursue more non-governmental projects? 
  • If the company remains profitable and realizes savings in certain costs this year, can you find ways to spend and increase allowable indirect costs while simultaneously strengthening your company? Can you award higher employee bonuses to boost employee morale and help retain great talent? Or maybe now is the time to ramp up cybersecurity training to strengthen IT controls and employee awareness of how to prevent, detect, and respond to cyber threats or invest in cyber penetration testing. 

Targeted spending on allowable costs will help elevate your overhead rate and help position your company to emerge stronger post-pandemic. If you need any help modeling expected overhead rates or have questions about allowable overhead costs, please contact Estera or Linda. We're here to help. 

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Planning for overhead rate changes: Considerations and strategies