CARES Act Provider Relief Fund Now Available for Dentists

The Provider Relief Funds supports American families, workers, and the heroic healthcare providers in the battle against the COVID-19 outbreak. HHS is distributing $175 billion to hospitals and healthcare providers on the front lines of the coronavirus response. Dentists did not originally qualify in this group. The ADA and AAO (American Association of Orthodontists) lobbied for these funds to be available for dental practices, and on July 10, were approved to apply.

The grant/stimulus money is based on your most recent tax return revenues, up to 2%. The application is simple and completed online. Applicants need to have their last 3 years of tax returns to upload. The application is attached so you can see what questions are asked. Please visit CARES Provider Relief Fund for more information.

Economic Resiliency Grant Now Available

The North Dakota Department of Commerce have made the Economic Resiliency Grant available to private companies operating in North Dakota for costs associated with improvements to their businesses for the purpose of reducing the spread of infection, and instilling consumer confidence in the marketplace. To clarify, this is a grant, and not a loan. Grants will be awarded at up to $50,000 per eligible business and up to $100,000 per eligible business with multiple locations. Visit Economic Resiliency Grant to find out how to apply.

COVID 19 Tax and Other Relief Provisions for Financial Institutions

Community Bank Leverage Ratio

The office of the Comptroller of the Currency (OCC), along with the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (collectively, the agencies) have approved an interim final rule as of April 6, 2020 that makes temporary changes to the community bank leverage ratio framework (CBLR framework), pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act. Note: This interim final rule applies to qualifying community banks with less than $10 billion in total consolidated assets that meet other criteria and opt into the CBLR framework.

Under the rule, the CARES Act reduces the Community Bank Leverage Ratio (CBLR) to 8% from the previous minimum of 9%. The two interim final rules modify the CBLR framework in the following ways:

  • The leverage ratio requirement will be 
    • 8 percent or greater, effective the second quarter of 2020.
    • greater than 8.5 percent, effective January 1, 2021.
    • greater than 9 percent, effective January 1, 2022.
  • A bank that elects to use the CBLR framework but temporarily fails to meet all of the qualifying criteria, including the leverage ratio requirement, will have a two-quarter grace period to return to compliance, provided that the bank maintains a leverage ratio of 
    • 7 percent or greater, effective the second quarter of 2020.
    • greater than 7.5 percent, effective January 1, 2021.
    • greater than 8 percent, effective January 1, 2022.
  • A bank that that fails to meet the grace period minimums must immediately apply the risk-based capital standards.

S-Corporation Distributions

An interim rule permits S-Corporation banks to pay distributions to their shareholders despite being in the “buffer zone” in relation to Basel III.  Prior to the interim rule, banks who wish to make these distributions while being in the “buffer zone” would have to obtain prior approval from the applicable bank regulators.

Tax Credits and Payroll Tax Considerations

The Employee Retention Credit (ERC) is a refundable credit of up to $5,000 per employee for those eligible employers who retained their employees during COVID-19.  The time period includes wages paid from March 13, 2020 to December 31, 2020.  Note that employers who participated in the Paycheck Protection Loan (PPP) program are ineligible for the credit.  Institutions will have to show either a 50% reduction in 2020 gross receipts compared to the same quarter in 2019 or whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings due to COVID-19. Click here for more information. 

In addition to the ERC, banks will have the opportunity to defer payments of the employer portion of Social Security taxes on employee wages incurred from March 27, 2020 through December 31, 2020.  Half of the amount deferred would be payable by December 31, 2021 and the other half by December 31, 2022.  Note that employers are ineligible for this deferral for those who have a PPP loan debt forgiven (up to the point of forgiveness the deferral is available).  The amount that is deferred would have to be recorded on the balance sheet as the amount has still be incurred. Click here for more information. 

Other areas to focus on for tax savings is changes in the net operating loss rules (NOLs) generated in 2018, 2019, and 2020.  These losses can be carried back five years.  Not only can this provide permanent tax savings by applying the NOLs to years in which the tax rates are higher but it can also reduce the deduction from capital on the Call Report is the deferred tax asset is converted to an income tax receivable.   Lastly, deferred tax assets that are attributable to NOLs are not included in Tier One capital under regulatory guidelines.  For banks that have leasehold improvements the CARES Act updated tax depreciation on leasehold improvements to be eligible for 100% bonus depreciation starting in 2018. Click here for more information. 

Please contact a Brady Martz financial institution team member with additional questions.  Our team is here to help.  


Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program (PPP)

While much attention has been given to the PPP loan program, including the effects on the lenders, many borrowers have posed questions on how to record the loan and related forgiveness.  The Financial Accounting Standards Board has provided some clarity on the issue to help borrowers record and report the transaction appropriately.  Borrowers with financial statements that include footnotes should disclose in the accounting policy section the method selected as well as include relevant footnote information that is consistent to the policy selected.  See below for a summary of the options available.

Options available to both business entities and not-for-profits

The borrower could account for the transaction as debt under FASB Accounting Standards Codification (ASC) 470, Debt.  Under this method, the borrower would record the amount received from the program as debt and accrue interest at the stated rate (1%).  The borrower should not impute additional interest to account for the difference between the stated rate and the market rate. This is due to transactions where interest rates are prescribed by governmental agencies are excluded from the guidance in FASB 836-30 on imputing interest. The loan would remain as a liability until either 1) the loan is, in part or wholly, forgiven and the debtor has been “legally released” or 2) the debor pays off the loan to the creditor. Once the loan is, in part or wholly, forgiven and legal release is received, a nongovernmental entity would reduce the liability by the amount forgiven and record a gain on extinguishment.

Business entities that are not classified as not-for-profits can also adopt guidance that non-for-profits would adopt for these transactions. The guidance is addressed in FASB ASC 958-605.  Under this guidance, the borrower would record the inflow as a refundable advance (i.e. conditional contribution).  The borrower would then reduce the refundable advance and recognize the contribution once the conditions of release have been substantially met or explicitly waived.

Options available to both business entities only (not-for profits are excluded)

Borrowers have the option of accounting for the inflow under guidance contained in IAS (International Accounting Standards) 20 as a governmental grant.  The borrower would account for the cash inflow from the loan as a deferred revenue liability.  Once there is reasonable assurance (similar to the “probable” threshold in U.S. generally accounted principles) that the conditions will be met, the liability would be reduced with an offset to earnings on a systemic basis over the periods in which the grant related cost are incurred.  In the income statement the amount would be recorded as a credit to “other income” or a reduction to related expenses (such as compensation expense – costs in which were incurred in related to obtaining the loan/grant).

Borrowers also have the option of following guidance in FASB ASC 450-30, which is the model for gain contingency recognition.  Under this model, the earnings impact of a gain contingency is recognized when all the contingencies related to receipt of the assistance have been met and the gain is realized or realizable. As applied to forgivable loans received under the PPP, a business entity would initially record the cash inflow from the PPP loan as a liability. 

The proceeds from the loan would remain recorded as a liability until the grant proceeds are realized or realizable, at which time the earnings impact would be recognized.

Please contact a Brady Martz financial institution team member with additional questions.  Our team is here to help. 


New Regulatory Reporting Changes for Financial Institutions: June 2020

New Data for June 2020
New to June 2020 call reports will be data surrounding the Federal Reserve Lending Facilities, the Paycheck Protection Program (PPP), and loan modifications under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Loan Modifications
Items added include the number of loans with modifications under Section 4013 of the CARES Act and the outstanding balances of loan modifications under Section 4013 of the CARES ACT.

PPP Loans
Items added include the total number of PPP loans, total PPP loan balances, PPP loans pledged to PPPLF (Federal Reserve Paycheck Protection Program Liquidity Facility), and average PPP loans pledged to the PPPLF.

Note: Banks and credit unions have different call reporting requirements. The above items are examples of disclosures that have aspects that affect both types of institutions.

Capital Treatment for PPP Loans (Banks)
The call report has been revised to mitigate the effects of PPP loans on regulatory capital. The following revisions have been made:

  • Excluding PPP loans from total risk-based assets of advance approach banks.
  • Excluding PPP loans pledged to the PPPLF from Total Leverage Exposure.
  • Including PPP loans in the quarterly average amount of PPP loans pledged to the PPPLF in Schedule RC-R, Part 1, Deductions from Assets for the Leverage Ratio Purposes.

PPP Gets Five-Week Extension

On Wednesday, July 1, the House agreed unanimously to an extension of the Paycheck Protection Program (PPP). The five-week extension originated in the Senate on Tuesday, where it was approved late in the evening. President Trump signed the bill into law on Saturday, July 4. 

With around $129 billion of loan funds still available through the PPP, the application window closed on Tuesday, June 30 at midnight. However, this extension means that the U.S. Small Business Administration (SBA) will begin to accept applications again. The five-week extension puts the new application deadline at midnight on August 8. 

For further details on the PPP and the recent extension, check out this article from the Journal of Accountancy

SBA PPP Guidance Update—June 25-26, 2020

Late last week, the United States Small Business Administration (SBA) released yet another round of guidance updates regarding the Paycheck Protection Program (PPP). The areas covered by this latest release are maturity dates and loan amounts. A recent article from the Journal of Accountancy offers a brief overview of the guidance update.

The additional guidance was released in the form of new and updated PPP FAQ questions on the SBA website. Here are details of the changes made to the FAQ page:

FAQ 49 was added to the list. It clarifies that PPP loans that were assigned an SBA loan number on June 5, 2020 and later have a five-year maturity window. PPP loans assigned an SBA loan number prior to June 5, 2020 maintain the two-year maturity window established by the CARES Act. However, the borrower and lender may work together to extend the loan term to five years.

FAQ 10 was updated to reflect the new maximum loan amounts for self-employed individuals whose businesses were in operation on February 15, 2020 but not in operation between February 15, 2019 and June 30, 2019. For these individuals, the maximum PPP loan amount is calculated by multiplying their average monthly payroll for January and February 2020 by 2.5. If the individual received an Economic Injury Disaster Loan (EIDL) between January 31, 2020 and April 3, 2020, they should add the outstanding amount that will be refinanced by the PPP loan to their calculation.

FAQs 1, 2, and 4-7 were updated to reflect that the Paycheck Protection Program Flexibility Act of 2020 extended the covered period from eight weeks to 24 weeks.

For further details, click here to read the article in full at the Journal of Accountancy

Senate Passes Paycheck Protection Flexibility Act

  Senate Passes Paycheck Protection Flexibility Act

New Guidance Regarding PPP Loan Forgiveness