CARES Act Provider Relief Fund Now Available for Dentists

/in , /by

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

/in , /by

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.

Promoting Collaboration During a Crisis

/in /by

Whether the impact is on a global, national, or individual industry level, this pandemic is already changing the way businesses are operating on a day-to-day basis. As we venture past the peak of the pandemic, businesses are going to have to adapt to the new world in which they reside in order to survive. Specifically, within the business industry and as a business owner, it is crucial, now more than ever, to be familiar with the ins and outs of your business. This article discusses the benefits of collaboration during this difficult time.

To view this article, click HERE to access the original content.

How To Use Qualified Charitable Distributions For Charitable Giving

/in /by

Each year, millions of Americans make donations to charitable organizations and receive something in return – a tax break. However, the 2017 Tax Cuts and Jobs Act curbed this tax advantage by raising the standard deduction and, as a result, reducing the number of people eligible to claim a charitable deduction. For 2020, the standard deduction is $12,400 for individuals and $24,800 for married couples filing jointly. If the sum of your list of deductions is not greater than those amounts, there is no tax benefit to itemizing your deductions – which means you might not be able to claim your charitable donation.

Absent the ability to claim a deduction for charitable giving, some retirees just take their normal required minimum distribution (RMD) and bank the money, pay taxes on it and then make charitable gifts or tithe to their church on a monthly basis. For example, say your RMD is $10,000 and you pay 15 percent in taxes on this distribution. If you want to donate the money as a charitable gift, you’ll have only $8,500 left to do so.

However, there is a way to do this that will give you a tax advantage. A Qualified Charitable Distribution from an IRA enables retirees to claim their standard deduction and receive a tax benefit for their gift. The key is to arrange for the distribution to be made directly from your account custodian to the qualified 501(c)(3) charitable organization so that you do not take possession of the assets.

IRA owners may gift up to $100,000 each year, or $200,000 for a couple that files a joint tax return. Note that this option is available only for IRA owners over age 70½; it is not allowed for 401(k)s, 403(b)s, thrift savings plans, or other qualified plans. The QCD will be reported to the IRS and should be claimed by you on Form 1040 as an IRA distribution, but it will not be taxable. Another perk of this strategy is that the QCD can satisfy your annual Required Minimum Distribution (RMD). Be aware that if your QCD does not meet the full distribution amount required, you will have to withdraw and pay taxes on the remaining balance.

Another benefit of using an RMD for a charitable donation instead of receiving it as income is that this could keep you in a lower tax bracket. Consequently, it can help minimize taxes on Social Security benefits and keep your Medicare premiums low.

Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, RMDs are not mandatory in 2020. That’s because the initial market losses triggered by the COVID-19 outbreak were substantial; by not requiring distributions this year, retirement accounts have more time to potentially recover those losses.

Since it isn’t necessary to take an RMD this year, you might want to just make charitable gifts in cash. The CARES Act also enables this option by increasing the adjusted gross income (AGI) limit for individuals who qualify to itemize on their tax return. In 2020, you may deduct up to 100 percent of donations (up from 60 percent) against your AGI. For example, if you earn $500,000 in income, you may donate $500,000 and the entire amount is tax-deductible. This strategy is available to people younger than age 70½ and offers a benefit similar to the QCD.

Even if you don’t qualify to itemize, you may claim up to a $300 charitable gift deduction on your 2020 tax return. As always, it’s best to seek the advice of a tax professional in order to figure out what is best for your situation.

How Likely Would a Second Coronavirus Wave Negatively Impact the Stock Market?

/in /by

As Johns Hopkins University of Medicine’s Coronavirus Resource Center revealed a recent increase of coronavirus cases in the Southern and Southwestern United States, the VIX ticked up. With fears of the outbreak curve not flattening, how will this impact markets?

The Volatility Index (VIX) was established by the Chicago Board Options Exchange in 1993 to gauge volatility in the financial markets. Referred to colloquially as the “fear index”, it measures the next 30 days of anticipated volatility for the U.S. Stock Market via S&P 500 options. For reference, during the peak of the 2008 financial crisis, it topped out at 89.53. During periods of relative calm, it’s not unheard of to trade below 10. On March 16 of this year, the VIX reached 82, thus demonstrating how volatile investors expected markets to be due to the uncertainty of the coronavirus.

On February 12, 2020, the Dow reached 29,551.42 and the S&P 500 rose to 3,379.45. But by the end of February, these major indices experienced their greatest fall since 2008, ushering in a market correction.

Coronavirus and its Impact on the Markets

Starting in early March, the COVID-19 pandemic began taking a negative toll on stock markets worldwide, the worst since 2008. On March 9, the Dow fell 2,158 points, or 8.2 percent, during the day’s lows. Other major U.S. markets were not spared – the S&P 500 fell 7.6 percent and the Nasdaq dropped 7.3 percent.

On March 12, the U.S. stock indices dropped more. The S&P 500 fell another 9.5 percent, along with the Dow falling 2,353 points, almost 10 percent lower. For the Dow, it was the worse one-day performance since Oct. 19, 1987’s drop, bringing it back to 2017 levels. While there was hope of a sustained rally beginning on March 13, it was dashed when the Dow Jones fell nearly 13 percent or 2,997.10 points, and the S&P 500 dropped nearly 12 percent on March 16.

Factors Contributing to the Crash

While the stock market crash in 2020 was directly attributable to the coronavirus outbreak worldwide, many experts, including the International Monetary Fund (IMF), view the coronavirus as speeding up a global slowdown that was already in the works.

Despite the St. Louis Fed’s data that showed the United States had an unemployment rate of 3.6 percent in late 2019, the nation’s industrial output peaked in 2017, and experts noticed a declining trend at the start of 2018. The IMF also believed the United States-China trade war made global growth more challenging going forward.

There were other concerning factors about economic growth domestically and internationally, causing fear a worldwide recession was beginning. March 2019 saw the U.S. yield curve inverting – which means longer-term debts yield less than shorter-term debts. The ISM Manufacturing Index fell below 50 percent in August 2019, dropping to 48.3 percent in October 2019, and remaining below 50 percent through 2019.

When it comes to rising COVID-19 cases, the state of California saw 4,515 new cases over 24 hours, as reported on June 21. Florida’s reports on June 20 and 21 saw the number of cases increase by 4,049 and 3,494, respectively. Other Southern and Western states, such as Nevada, Missouri, and Utah, reported one-day records in increases of coronavirus cases as well.

With Georgia, Alabama, Florida, and California, among others, showing concerning trends for increased coronavirus infection rates, analysts at Deutsche Bank expressed concern about how the virus may keep spreading. According to the same research, there’s some trepidation on how it may negatively impact economic growth. Depending on the overall hospital capacity to handle a resurgence in severe COVID-19 cases, how well the medical infrastructure responds will influence how the economy functions going forward.

With the number of increasing cases shifting from the Northeast to Southern and Western states, it’s feared that there will be another panic on Wall Street as reopening the economy is postponed, further stunting economic activity.

Research from Jefferies Financial Group found that even though coronavirus cases are increasing, it’s not the only or the biggest worry. Jefferies’ research found that for investors, the biggest concern is how well and how fast the economy bounces back.

Analysts believe that there needs to be more than just action by The Federal Reserve to inspire market confidence. The research found four main concerns, which included the effects of COVID-19:

  • 6.6 percent of respondents said the upcoming election is the most important factor
  • 12.1 percent of respondents said a second wave of COVID-19 is the most important factor
  • 31.1 percent of respondents said The Federal Reserve’s decision is the most important factor
  • 50.2 percent of respondents said the shape of the recovery is the most important factor

As the economy reopens and medical experts become more knowledgeable and better prepared to deal with COVID-19 through therapies and equipment for hospitalizations, it seems that investors will be taking a more holistic investing approach.

Fileless Malware Poses New Threat to Computer Users

/in /by

With increased cyber threats, there is great awareness of malware that comes attached in files.  Individuals and businesses invest in security solutions to protect against malware. In fact, there are often company policies regarding opening attachments on emails; yet there is an increase in a type of threat (though not new), known as the fileless malware.

What is Fileless Malware?

A fileless malware attack is a type of threat that doesn’t involve executable files. Instead, these attacks include scripts that run on browsers, command prompts, Windows PowerShell, Windows Management Instrumentation, VBScripts, or Linux (Python, PERL).

In other words, fileless malware is a form of cyberattack carried out through software that already exists on your device, in your authorized protocols and in applications that you have allowed on your device. As such, fileless malware is becoming a favorite of cybercriminals because they don’t have to look for ways to install malicious files in your device – they only need to take advantage of built-in tools.

Reported examples of fileless malware include PowerGhost, which has been used in crypto-mining and DDoS attacks.

How It Works

First, note that these attacks are termed fileless because they are not file-based; instead, they hide in computer memory.

The malware launches an attack in various ways. For instance, a malicious code is injected in an application already installed or a user clicks on a legitimate-looking link that loads a remote script. Another scenario exists within a legitimate-looking website that a user visits; the attackers exploit vulnerabilities in the Flash plugin; and a malicious code runs in the browser memory of the user’s computer.

While file-based malware uses executable files, the fileless type hides in areas where it can’t easily be detected, such as the memory. It is then written directly to the RAM (and not the disk), where it carries out a series of events. Once in your system, the malware piggybacks on legitimate scripts and executes malicious activities while the legitimate program runs. At this point, it performs malicious activities such as payload delivery, escalating admin privileges, and reconnaissance, among others.

Since it works in-memory (RAM), its operations end when you reboot your system. This makes it more challenging to trace attacks. The fileless malware also may work in cohorts with other attack vectors, such as ransomware. 

Detection and prevention

Various security vendors claim to have products that can detect fileless threats, as well as protect endpoint systems. Successful security solutions need to be able to put in place technologies that enable them to inspect different kinds of operating systems storage, as well as analyze in real-time the execution of patterns of processes in a system.

But even so, one thing is certain: traditional anti-malware software will not detect fileless malware because they are not file-based and they do not they leave footprints. Here are some tips that will help mitigate against fileless attacks:

  • Regularly update the software on your devices (especially Microsoft applications) to protect against attacks propagated through PowerShell.
  • Apply an integrated approach that addresses the entire full threat lifecycle. This is possible when you use a multilayered defense mechanism.
  • Use security solutions that can detect malicious attacks against command prompt (CMD), PowerShell, and whitelisted application scripts.
  • Use anti-malware tools that include machine learning, as this will limit scripts from creating new polymorphic malware within your environment.
  • Practice behavior monitoring to help look out for unusual patterns.
  • Use memory scanning to help detect patterns of known threats.
  • Be on the lookout for high CPU usage by legitimate processes and suspicious error messages that appear for no clear reason.
  • Disable PowerShell and Windows Management Instrumentation (WMI) if you are not utilizing them.
  • Avoid using macros that have no digital signatures or turn off macros if not being used.
  • Use endpoint detection and response tools.

Final Thoughts

The cyber threat landscape keeps evolving. Every day, there are more sophisticated threats as criminals keep advancing to take on countermeasures that have been implemented.

You should invest in security solutions that mitigate varying classes of threats, especially machine learning technologies. This will help protect against the latest and emerging threats. Also, keep your Windows OS and other installed software up-to-date to reduce the chances of fileless malware attacks.

Despite taking the mentioned measures, it’s important to stay informed of the latest threats and take necessary precautions.

COVID 19 Tax and Other Relief Provisions for Financial Institutions

/in , , /by

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)

/in , , /by

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

/in , , /by

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 Lender Accounting and Reporting Issues 

/in , /by

Lender institutions face a variety of issues when it comes to PPP lending.  These include, but are not limited to proper accounting of the PPP loan itself and related fees as well as various restructuring of loans.  On June 30, 2020 the AICPA issued a set of technical questions and answers (TQA’s) to address some of these issues. Listed below is a summary of some of the common issues that PPP lenders will face.

Classification of Advances Under the Paycheck Protection Program

Question: Should the lending institution account for an advance under this program as a loan or as a facilitation of a government grant?

The instrument is legally a loan with a stated principal, interest, and maturity date. The institution is expected to collect amounts due from either the borrower or the Small Business Administration (SBA) as guarantor. The institution should account for this instrument as a loan.

Accounting for the Loan Origination Fee Received From the SBA

Question: What is the accounting for the fee received or receivable from the SBA for originating the loan.  How would the clawback feature/considerations be accounted for? 

Upon funding of the loan, the fee should be accounted for as a nonrefundable loan origination fee under FASB ASC 310-20, Receivables—Nonrefundable Fees and Other Costs. As a result, it should be offset against loan origination costs and deferred in accordance with FASB ASC 310-20-25-2 and amortized over the life of the loan (or estimated life if prepayments are probable and the timing and amount of prepayments can be reasonably estimated and the entity qualifies and elects to apply the guidance in paragraphs 26–32 of FASB ASC 310-20-35) as an adjustment to yield in accordance with FASB ASC 310-20-35-2.  However, institutions should determine the significant of the fees to their financial statements.  Current policies may dictate that the fee and related expenses be recorded when received and incurred, respectively.

As noted in question .43, the loan guarantee is embedded in the loan and is part of the same “unit of account.” As a single unit of account, the arrangement involves multiple counterparties, which are (1) the lending institution, (2) the borrower, and (3) the SBA as guarantor, which through that role could be looked to for payment if the borrower either (a) provides the institution/SBA with documentation it has met the conditions to have the loan forgiven or (b) defaults on its obligation. The loan origination fee is paid to the institution by one of the counterparties, the SBA. In effect, the SBA is paying a loan origination fee that would have ordinarily been paid by the borrower. In certain program documents, the fee may be referred to as a processing fee, but the labeling of the fee is not determinative.

The fee received from the SBA for originating the loan may be subject to clawback (or if the SBA has not yet paid the fee, the fee may not be paid), after full disbursement of the PPP loan if 

  • the PPP loan is cancelled or voluntarily terminated and repaid after disbursement but before the borrower certification safe harbor date,
  • the PPP loan is cancelled, terminated, or repaid after disbursement (and after the borrower certification safe harbor date) because SBA conducted a loan review and determined that the borrower was ineligible for a PPP loan, or 
  • the lender has not fulfilled its obligations under the PPP regulations.

In addition, lenders should consider guidance in FASB ASC 450, Contingencies, related to fees that may be subject to clawback or not received. If determined necessary, a lender would establish a loss contingency when it is probable that events or conditions precedent to a loss have occurred, and the resulting amount of the loss is estimable. The ability to estimate this contingent liability will be difficult for institutions since there is no historical data related to the loan program. However, clawback history will emerge over time related to each institution as well as publicly available information.  Each institution should use information as available to support their assessment. Most loans under $2M likely will not be subject to the clawback provisions.

Reporting Considerations

Lenders will use the SBA form 1502 to report information on fully disbursed loans. Upon submission of form 1502, the SBA will initiate payment of the PPP processing fee. The SBA has published an interim final rule extending the deadline to electronically upload form 1502 reporting information to the later of (1) May 29, 2020, or (2) 10 calendar days after disbursement or cancellation of the PPP loan. On May 22, 2020 the SBA will begin accepting PPP 1502 forms on May 22, 2020. PPP loan information will be submitted to the SBA on a monthly basis. This would include loans that were cancelled or voluntarily terminated.  Those that were repaid after disbursement will also be reported. It should be noted that if the lender sells a PPP loan, the originating lender would still be entitled to the processing fees.

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