Organization: MCAA

December 4, 2020|by Kathleen M. Connelly

Until now, the CDC recommended a 14-day quarantine for individuals who might have had “close contact” with a person who has or is suspected of having COVID-19.[1]  This quarantine was longer than the 10-day recommendation for those who test positive, as the longer quarantine period is based on estimates of the upper boundaries of the viral incubation period. However, in its new guidance issued December 2, 2020, the CDC acknowledged three adverse consequences of the 14-day quarantine:

• It can impose personal burdens that may affect physical and mental health as well as economic hardship that may reduce compliance.
• It may pose additional burdens on public health systems and communities, especially when cases are rising and the need to impose quarantines are rapidly rising.
• It may dissuade recently diagnosed persons from naming contacts and dissuade contacts from responding to contact tracer outreach if they perceive the duration of the quarantine is too onerous.

New Shorter Quarantine Options. In an effort to reduce these burdens and increase community compliance, the CDC has announced the following shorter quarantine alternatives to the 14-day quarantine.

1. 10-Day Quarantine Option. Under this option, quarantine can end after day 10 without testing and if no symptoms have been reported during this period.
2. 7-Day Quarantine Option. If diagnostic testing resources are available, quarantine can end after day 7 if i) the test results are negative and ii) no symptoms are reported during this period.  The testing specimen may be collected and tested within 48 hours of the expiration of the 7-day period (or before the planned end of quarantine in the event of testing delays).

Quarantine may only be discontinued under either option if these additional criteria are met:

• no clinical evidence of COVID-19 was elicited via daily symptom monitoring during the entirety of the quarantine;
• daily symptom monitoring continues through day 14; and
• persons are counseled regarding the need to strictly adhere through day 14 to all recommended non-pharmaceutical mitigation strategies, and advised to immediately contact local health officials or their healthcare provider and self-isolate should symptoms develop.

Of course, individuals can continue to quarantine for the longer 14-day period without testing in accordance with the preexisting recommendations, which maximally reduces the risk of post-quarantine transmission.

Persons Who Must Quarantine Together, Such as Households. The CDC further recommends that when housing is shared (e.g., families, incarcerated persons, students), every effort should be made to physically separate the quarantined individual from others through such measures as having the quarantined individual residing alone in a separate closed room with exclusive use of their own bathroom and implementation of other mitigating strategies.  If any co-housed person is diagnosed with COVID-19, all co-housed persons will require evaluation as contacts.

[1] The CDC defines “close contact” as being within 6 feet of an infected person for a cumulative total of 15 minutes or more over a 24-hour period starting from 2 days before illness onset (or, for asymptomatic patients, 2 days prior to test specimen collection) until the time the patient is isolated.

As always Lindabury’s Labor & Employment team is vigilantly monitoring the legislative and regulatory developments in response to the coronavirus outbreak. Stay up to date with the latest information by visiting the Lindabury COVID-19 (Coronavirus) Resource Center. If you have any questions, please contact Lindabury.

As the very public debate in Congress regarding another stimulus bill rolls on, Withum wanted to share an update issued late last week by the SBA, in conjunction with the Department of Treasury. With lobbying groups, lenders, and borrowers long-since advocating for a more simple forgiveness process, specifically for smaller loans, the SBA took this into their own hands late last week, as they released a new interim final rule (“IFR”). Because they are required to work within the confines of the current statutes, the consequences of this interim final rule are not as far reaching as proponents for a simpler forgiveness process would like, but it’s certainly a movement in the right direction. Here are the highlights:

New Application Form and Simplification for Loans under $50,000: In the release of the IFR, the SBA granted a de minimus exemption that all borrowers who have loans under $50,000 (provided that they do not, with affiliates, exceed $2M) would be exempt from any reductions in the loan forgiveness amount based on reductions in full-time equivalents or reductions in salaries/wages. This is welcomed news to these borrowers. The SBA also released the Form 3508S, a much more simple version of the Form EZ previously issued, which just asks the borrower for the bare minimum of requirements – loan information, forgiveness amount, and for the borrower to sign the certifications. While this is welcomed news to borrowers, the statutes of the CARES Act still require that forgiveness is not to be issued unless supporting documentation supporting the expenditures is provided, and there was no change to this rule offered by the SBA. Borrowers who utilize this form are still required to submit the supporting documentation for their expenditures, ultimately supporting the amount claimed for forgiveness. Further, the IFR clarifies that lenders are required to complete the following when in receipt of such application: 1) confirm receipt of the certifications, 2) confirm receipt of the documentation required to be submitted. It clearly indicates that the borrower is responsible to provide an accurate calculation of the loan forgiveness amount. 

With 3.57 million outstanding PPP loans totaling $62 billion in funds, this is set to simplify the process for about 12% of the PPP funds distributed. Withum expects that lending institutions will need some time to update their systems to allow for these applications, so borrowers who fit this mold will likely need to wait a couple more weeks to apply for forgiveness if they desire to use the new form.

Changes to the Lender Review Process for All Loans: In addition to the above, the IFR also amended lender responsibility with respect to reviewing documentation from submitted borrowers. In response to what appears to be an overwhelming number of borrowers submitting applications with documentation of eligible payroll and non-payroll costs in excess of the loan amount, lenders responsibilities are now adjusted such that they are only required to confirm the borrower’s calculation and review the required documentation up to the amount of the request forgiveness amount. Although we cannot be sure how each lender will approach/implement this guidance, it stands to increase the speed with which loans are being processed if utilized. 

What Else is Going on in Congress? Since the IRS published Notice 2020-32, disallowing deductions for expenses that were forgiven under the PPP, Congress members have spoken publicly about how this notice was not in line with the intentions of the CARES Act. On October 1, the House passed an updated Heroes Act which contained language allowing such deductions, marking the first time we have seen any legislation overturning the IRS notice make any headway. Based on what has transpired since that date, we know that the Heroes Act, in it’s current form, is very unlikely to be signed into law, however inclusion of language in this regard is encouraging nonetheless. 

Also at the forefront of these discussions are additional appropriations for the PPP funds. At the very least, the White House has signaled that they would be amenable to redeploying the nearly $130B of unused appropriations for the PPP, and Congress members on both sides of the aisle have indicated they are favor of a PPP v2. The most solid proposal we have seen to date is within the updated Heroes Act, which includes a second round of loans, utilizing the same formula as the first round, to eligible ‘smaller businesses’ of 200 employees or less who can also demonstrate a 25% reduction in revenues in either Q1, Q2 or Q3 as compared to last year. The maximum size loan under this proposal would be $2M. Eligibility under alternative size standards and how the affiliation rules would be applied are not clear at this time.

The Alston & Bird Health Care Group details how changes by the Centers for Medicare & Medicaid Services to the AAP loan program delays repayment obligations for all health care providers and suppliers that received AAP loans during the COVID-19 pandemic.

PPP Loans – Disallowance of Expense Deductions: Withum is getting a lot of questions regarding the denial of tax deductions relating to PPP loan forgiveness. As you may recall, cancellation of debt relating to the PPP loan is not taxable income. While that is the case for the loan itself, the amount forgiven actually ends up being fully taxable because the IRS issued Notice 2020-32 to disallow the tax deductions (expenses) that gave rise to the loan forgiveness. Here is a link to a Withum article on the Taxation of PPP Loans and Loan Forgiveness. Thus, taxpayers should expect more taxable income as they will have less deductible expenses in 2020 than are reflected on their internal books and records.

This also has caused some fiscal year-end borrowers to consider whether they can choose which deductions to disallow so they can defer the taxation of the loan forgiveness amount until a later tax year. 

Consider this example: a borrower obtained a PPP loan 8 weeks before the end of its 2020 FYE. If it obtains loan forgiveness based on the first 8 weeks of covered expenses, then those expenses would be disallowed and the loan forgiveness amount would be taxable in 2020. If, however, the borrower can disregard the first 8 weeks of expenses and rely only on the last 16 weeks of covered expenses paid or incurred during the covered period, then it could defer the expense disallowance, and therefore the taxation of the loan forgiveness amount until 2021. There is no guidance on this issue from the IRS or from the SBA, and while there are reasonable arguments to be made both ways, we cannot recommend borrowers take this position because eligibility for loan forgiveness is based on “the sum of” the covered expenses paid and incurred during the covered period, according to section 1106(b) of the CARES Act.

Could Deductibility of PPP Expenses Change?  Many have speculated that denying tax deductions for PPP loan recipients was not the intent of the program.  Several members of Congress have indicated that they intend to pursue legislation that would allow for all PPP related expenses to be deductible in order to avoid having small businesses deal with an unexpected tax bill after such a difficult year.  Even though at least one bill to restore the deductions has been proposed, at this point no agreement has been reached, so taxpayers need to proceed assuming that no change is coming.  That said, it is possible that we could see this addressed in an upcoming stimulus bill ….stay tuned.

Reminder Section:  (what should I be doing):

• Talk to your lender to find out when its PPP loan forgiveness application portal will be ready.
• Talk to your payroll company about claiming the employer payroll tax deferral and employee retention credits (ERC) that were made available in the CARES Act.
• Talk to your payroll company about claiming the qualified sick/family leave refundable tax credits (from FFCRA, passed prior to the CARES Act).