Tag: CARES Act

Three Individuals Sentenced for $3.5 Million COVID-19 Relief Fraud Scheme

Three Individuals Sentenced for $3.5 Million COVID-19 Relief Fraud Scheme

On February 6, three individuals were sentenced for fraudulently obtaining and misusing Paycheck Protection Program (PPP) loans that the US Small Business Administration (SBA) guaranteed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

According to court documents and evidence presented at trial, in 2020 and 2021, defendants Khadijah X. Chapman, Daniel C. Labrum, and Eric J.O’Neil submitted falsified documents to financial institutions for fictitious businesses to fraudulently obtain $3.5 million in PPP loans intended for small businesses struggling with the economic impact of COVID-19. Chapman was convicted in November 2023 of bank fraud. Labrum and O’Neil pleaded guilty in 2023 to bank fraud. Following their convictions, Chapman was sentenced to three years and 10 months in prison, Labrum was sentenced to two years in prison, and O’Neil was sentenced to two years and three months in prison.

Read the US Department of Justice’s (DOJ) press release here.

False Claims Act Complaint Filed Against Former President and Co-Owner of Mobile Cardiac PET Scan Provider

The DOJ filed a complaint in the US District Court for the Southern District of Texas under the False Claims Act (FCA) against Rick Nassenstein, former president, chief financial officer, and co-owner of Illinois-based Cardiac Imaging Inc. (CII), which provides mobile cardiac positron emission tomography (PET) scans.

The complaint alleges that Nassenstein caused CII to pay excessive, above-market fees to doctors who referred patients to CII for cardiac PET scans. The government alleges that the compensation arrangements violated the Stark Law, which prohibits health care providers from billing Medicare for services referred by a physician with whom the provider has a compensation arrangement unless the arrangement meets certain statutory and regulatory requirements. Claims knowingly submitted to Medicare in violation of the Stark Law also violate the federal FCA.

The complaint alleges that CII provided cardiac PET scans on a mobile basis and paid the referring physicians, usually cardiologists, to provide physician supervision as required by Medicare rules. From at least 2017 through June 2023, Nassenstein allegedly caused CII to enter into compensation arrangements with referring cardiologists that provided for payment to the cardiologists as if they were fully occupied supervising CII’s scans, even though they were actually providing care to other patients in their offices or patients who were not even on site. CII’s fees also allegedly compensated the cardiologists for additional services the physicians did not actually provide. The complaint alleges that CII paid over $40 million in unlawful fees to physicians and submitted over 75,000 false claims to Medicare for services provided pursuant to referrals that violated the Stark Law.

The lawsuit was originally a qui tam complaint filed by a former billing manager at CII, and the United States, through the DOJ, filed a complaint in partial intervention to participate in the lawsuit.

The case, captioned US ex rel. Pinto v. Nassenstein, No. 18-cv-2674 (S.D. Tex.), follows an $85.5 million settlement in October 2023 by CII and its current owner, Sam Kancherlapalli, for claims arising from this conduct.

Read the DOJ’s press release here.

San Diego Restaurant Owner Charged with Tax and COVID-19 Relief Fraud Schemes

On February 2, a federal grand jury in San Diego returned a superseding indictment charging a California restaurant owner with wire fraud, conspiracy to commit wire fraud, tax evasion, filing false tax returns, conspiracy to defraud the United States, conspiracy to commit money laundering, and failing to file tax returns.

According to the indictment, Leronce Suel, the majority owner of Rockstar Dough LLC and Chicken Feed LLC, conspired with a business partner to underreport over $1.7 million in gross receipts on Rockstar Dough LLC’s 2020 federal corporate tax return. From March 2020 to June 2022, Suel and the business partner then allegedly used this fraudulent return to qualify for COVID-19-related loans pursuant to the PPP and Restaurant Revitalization Funding program. In connection with those loans, Suel also allegedly certified falsely that he used the loan money for payroll purposes only. The indictment alleges that Suel and his business partner laundered the fraudulently obtained funds through cash withdrawals from their business bank accounts and stashed more than $2.4 million in cash in their home.

The indictment further charges that Suel failed to report millions of dollars received in cash and personal expenses paid for by his businesses as income, in addition to reporting false depreciable assets and business losses.

If convicted, Suel faces prison sentences up to 30 years for each count of wire fraud and conspiracy to commit wire fraud, 10 years for each count of conspiracy to commit money laundering, five years for tax evasion and conspiracy to defraud the United States, three years for each count of filing false tax returns, and one year for each count of failing to file tax returns.

Read the DOJ’s press release here.

© 2024 ArentFox Schiff LLP
For more on Regulated Industries, visit the NLR Biotech, Food, Drug section.

2024 New Years’ Resolutions for Retirement Plans

Over the past few years, numerous pieces of legislation affecting retirement plans have been signed into law, including the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Bipartisan American Miners Act, and the SECURE 2.0 Act (the “Acts”). While some of the changes, including both mandatory and optional provisions under the Acts previously became effective, other provisions under the SECURE Act and SECURE 2.0 Act had a delayed effective date. As we enter into 2024, many of the remaining mandatory and optional provisions established under these Acts are now going into effect. As a refresher, we have compiled a brief list of some of the important changes that will affect retirement
plans in 2024:

Long-Term Part-Time (“LTPT”) Employee Rule –
We resolve to permit more part-time employees to defer to our plans.

Beginning January 1, 2024, 401(k) plans are required to allow eligible employees who have at least 500 hours of service over 3 consecutive, 12-month periods beginning on or after January 1, 2021 to participate for purposes of making elective deferrals only, even where the 401(k) plan provides for a longer service requirement for deferral eligibility. See our prior SECURE Act and SECURE 2.0 Act newsletters, linked below, for more details on the LTPT employee rule; however, note that the IRS recently published proposed regulations on the LTPT employee rule, which are not addressed in these newsletters.

Effective January 1, 2025, the SECURE 2.0 Act changed the rule to require only 2 consecutive 12-month periods of service with at least 500 hours of service, and to apply the LTPT employee rule to 403(b) plans.

RMD Age and Roth Accounts –
We resolve to permit our elders to stay in our plans longer (again).

The age at which required minimum distributions (“RMDs”) must commence was increased again by SECURE 2.0, this time to age 73 for individuals who turn age 72 on or after January 1, 2023. Additionally, pre-death RMDs are no longer required for Roth accounts in retirement plans, generally effective for taxable years after December 31, 2023.

New Emergency Withdrawals –
We resolve to permit more access to retirement plan savings.

Beginning January 1, 2024, plan sponsors may add a number of new optional features addressing emergency situations, including:

  • Emergency Expense Distributions – Plans may permit participants to receive one emergency distribution of up to $1,000 per calendar year to cover unforeseeable or immediate financial needs relating to personal or family emergency expenses.
  • Distributions for Victims of Domestic Violence – Plans may permit a participant who is a domestic abuse victim to take a distribution up to the lesser of $10,000 (indexed) or 50% of the participants vested account balance during the 1-year period beginning on the date on which the individual is a victim of domestic abuse by a spouse or domestic partner.
  • Emergency Savings Accounts – Plan sponsors may offer an emergency savings account linked to their defined contribution retirement plan. Participants who are not highly compensated employees may contribute (on a post-tax, Roth basis) a maximum of $2,500 (indexed), or such lower amount that may be set by the plan sponsor. The account must allow for withdrawal by the participant at least once per calendar month, and the first 4 distributions per year from the account cannot be subject to fees or charges.

Mandatory Distribution Threshold –
We resolve to increase our automatic IRA rollover threshold.

The limit on involuntary distributions (i.e., the automatic IRA rollover limit) is increased from $5,000 to $7,000 for distributions occurring on or after January 1, 2024. However, this increase is optional – therefore, the limit under a plan will stay at $5,000 unless the plan administrator takes action to increase it to $7,000.

Roth Employer Contributions –
We resolve to treat employer contributions more like Roth.

Plans may permit employees to designate employer matching contributions or nonelective contributions as Roth contributions if such contributions are 100% vested when made.

Matching Contributions on Student Loan Payments –
We resolve to treat student loan payments like employee deferrals.

Plan sponsors may treat certain “qualified student loan payments” as elective deferrals for purposes of matching contributions.

2024 Resolutions Saved for Another Year

Roth Catch-Up Contribution Requirement is Pushed Back.

SECURE 2.0 required that all catch-up contributions made to a retirement plan by employees paid more than $145,000 (indexed) in FICA wages in the prior year be made on a Roth basis. The original effective date of this requirement was generally January 1, 2024 – however, in September, the IRS provided for a 2-year administrative transition period, which essentially moved the effective date for this requirement from January 1, 2024 to January 1, 2026. This extension provides plan sponsors with additional time to prepare for this new requirement.

Amendment Deadline to Reflect the Acts

IRS Notice 2024-02, released in the last week of December 2023, further extended the amendment deadline for changes made by the Acts. In general, the deadline to adopt an amendment to a qualified plan for required and discretionary changes made by the Acts is now December 31, 2026.

For more in-depth analysis of the new provisions briefly described above, please refer to our prior newsletters linked below:

The Secure Act Becomes Law!

SECURE 2.0 Passes

IRS Relief for Roth Roth Catch-up Requirement

© 2007-2023 Hill Ward Henderson, All Rights Reserved
For more news on Retirement Planning in 2024, visit the NLR Financial Institutions & Banking section.

SECURE 2.0 Act Brings Slate of Changes to Employer-Sponsored Retirement Plans

In December, the SECURE 2.0 Act of 2022 (“SECURE 2.0”) was passed, a package of retirement provisions providing comprehensive updates and changes to the SECURE Act of 2019. The legislation includes some key changes that affect employer-sponsored defined contribution plans, such as profit-sharing plans, 401(k) plans, 403(b) plans and stock bonus plans. While some of the changes are effective immediately upon the law’s enactment, most required changes are not effective before the plan year beginning on or after January 1, 2024, so employer sponsors have time to prepare for compliance.

Required Changes

Mandatory automatic enrollment in new plans.

Plan sponsors are currently allowed to provide for automatic enrollment and automatic escalation in 401(k) and 403(b) plans. SECURE 2.0 requires new 401(k) and 403(b) plans to automatically enroll participants at a new default rate, and to escalate participants’ deferral rate each year, up to a maximum of 15%, with some exceptions for new and small businesses. This provision applies to new plans with initial plan years beginning after December 31, 2024.

Changes to long-term part-time employee participation requirements.

The Act currently requires 401(k) plans to permit participation in the deferral part of the plan only by an employee who worked at least 500 hours (but less than 1000 hours) per year for three consecutive years. SECURE 2.0 changes this participation requirement by long-term part-time employees working more than 500, but less than 1000, hours per year to two consecutive years instead of three. However, this two-year provision does not take effect until January 1, 2025, which means the original SECURE Act three-year provision still applies for 2024. Employers should start tracking hours for part-time employees to determine whether they will be eligible in 2024 or 2025 under this provision. For vesting purposes, pre-2021 service is disregarded, just as service is disregarded for eligibility purposes. This provision is applicable to 401(k) plans and 403(b) plans that are subject to ERISA and does not apply to collectively bargained plans. This provision applies to plan years beginning after December 31, 2024.

Changes to catch-up contributions limits.

If a defined contribution plan permits participants who have attained age 50 to make catch-up contributions, the catch-up contributions are now required to be made on a Roth basis for participants who earn at least $145,000 (indexed after 2024) or more in the prior year. This provision is effective for taxable years beginning after December 31, 2023.

Changes to the required minimum distribution (RMD) age.

Currently, required minimum distributions must begin at age 72 for participants who have terminated employment. SECURE 2.0 increases the age to age 73 starting on January 1, 2023, and to age 75 starting on January 1, 2033. This means that participants who turn 72 in 2023 are not required to take an RMD for 2023; instead, they will be required to start taking RMDs for calendar year 2024, the year in which they turn 73. This provision is effective for distributions made after December 31, 2022, for individuals who turn 72 after that date.

Early withdrawal tax exemption for emergency withdrawal expenses.

SECURE 2.0 provides for an exception from the 10% early withdrawal tax on emergency expenses, defined as certain unforeseeable or immediate financial needs, on a limited basis (once per year, up to $1000). Plans may allow an optional three-year payback period, and participants are restricted from taking another emergency withdrawal within three years of any unpaid amount on a previous withdrawal. This provision is effective for plan years beginning on or after January 1, 2024.

Changes to automatic enrollment for new plans.

Almost all new defined contribution plans will be required to auto-enroll employees upon hire (existing plans are exempt from this provision). This provision is applicable for plan years beginning on or after January 1, 2025.

Optional Changes

Additional catch-up contribution opportunities.

Currently, the catch-up contribution limits for certain plans are indexed for inflation and apply to employees who have reached the age of 50. SECURE 2.0 increases catch-up contribution limits for individuals aged 60-63 to the greater of: (1) $10,000 (indexed for inflation), or (2) 50% more than the regular catch-up amount in effect for 2024. This provision is effective for plan years beginning on or after January 1, 2025.

Additional employer contributions to SIMPLE IRA plans.

Current law requires employers with SIMPLE IRA plans to make employer contributions to employees of either 2% of compensation or 3% of employee elective deferral contributions. SECURE 2.0 allows employers to make additional contributions to each employee of a SIMPLE plan in a uniform manner, provided the contribution does not exceed the lesser of up to 10 percent of compensation or $5,000 (indexed). This provision is effective for taxable years beginning after December 31, 2023.

Replacing SIMPLE IRA plans with safe harbor 401(k) plans.

The new law also permits an employer to elect to replace a SIMPLE IRA plan with a safe harbor 401(k) plan at any time during the year, provided certain criteria are met. The current law prohibits the replacement of a SIMPLE IRA plan with a 401(k) plan mid-year. This provision also includes a waiver of the two-year rollover limitation in SIMPLE IRAs converting to a 401(k) or 403(b) plan. This change is effective for plan years beginning after December 31, 2023.

Increasing involuntary cash-out threshold.

Currently plans may automatically cash-out a vested participant’s benefit that is between $1,000 and $5,000 and roll this amount over to an IRA. SECURE 2.0 allows plans to increase the $5,000 involuntary cash-out limit amount to $7,000. This provision of the law is effective for distributions made after December 31, 2023.

Relaxation of discretionary amendment deadline.

Under current law, a discretionary plan amendment must be adopted by the end of the plan year in which it is effective. SECURE 2.0 allows plans to make discretionary plan amendments to increase benefits until the employer’s tax filing deadline for the immediately preceding taxable year in which the amendment is effective. This applies to stock bonus, pension, profit-sharing or annuity plans to increase benefits for the preceding plan year. This provision is effective for plan years beginning after December 31, 2023.

Elimination of unnecessary plan notices to unenrolled participants.

SECURE 2.0 eases the administrative burden on plan sponsors by eliminating unnecessary plan notices to unenrolled participants. Under the amended law, plan sponsor notices to unenrolled participants may consist solely of an annual notice of eligibility to participate during the annual enrollment period, as opposed to numerous notices from the plan sponsor. This provision is effective for plan years beginning after December 31, 2022.

Crediting of student loan payments as elective deferrals for purposes of matching contributions.

Under SECURE 2.0, student loan payments may be treated as elective deferrals for the purposes of matching contributions to a retirement plan. This provision is available for plan years beginning on or after January 1, 2024.

Matching contributions designated as Roth contributions.

Previously, employer matching contributions could not be made as Roth contributions. Effective on the date of the enactment of SECURE 2.0, 401(a), 403(b), or governmental 457(b) plans may allow employees the option to designate matching contributions as Roth contributions.

Expansion of the Employee Plans Compliance Resolution System (EPCRS).

Currently, EPCRS contains procedures to self-correct certain limited, operational failures that are insignificant and corrected within a three-year period. SECURE 2.0 expands this, generally permitting any inadvertent failure to be self-corrected under EPCRS within a reasonable period after the failure is identified, without a submission to the IRS, subject to some exceptions. This provision went into effect on the date of enactment.

Recoupment of overpayments.

Currently, fiduciaries for plans that have mistakenly overpaid a participant must take reasonable steps to recoup the overpayment (for example, by collecting it from the participant or employer) to maintain the tax-qualified status of the plan and comply with ERISA. Under SECURE 2.0, 401(a), 403(a), 403(b), and governmental plans (not including 457(b) plans) will not lose tax qualification merely because the plan fails to recover an “inadvertent benefit overpayment” or otherwise amends the plan to permit this increased benefit. In certain cases, the overpayment is also treated as an eligible rollover distribution. This provision became effective upon enactment with certain retroactive relief for prior good faith interpretations of existing guidance.

Simplified plan designs for “starter” 401(k) and 403(b) plans.

Effective for plan years beginning after December 31, 2023, SECURE 2.0 creates two new plan designs for employers who do not sponsor a retirement plan: a “starter 401(k) deferral-only arrangement” and a “safe harbor 403(b) plan.” These plans would generally require that all employees be enrolled in the plan with a deferral rate of three percent to 15 percent of compensation.

Financial incentives for contributions.

SECURE 2.0 allows participants to receive de minimis financial incentives (not paid for with plan assets) for contributing to a 401(k) or 403(b) plan. Previously, plans were prohibited from offering financial incentives (other than matching contributions) to employees for contributing to a plan. This provision became effective for plan years starting after the date of enactment.

When do employers need to amend their plans for the SECURE Act, CARES Act, and SECURE 2.0 (“the Acts”)?

If a retirement plan operates in accordance with the Acts, plan amendments must be made by the end of the 2025 plan year (or 2027 for governmental and collectively bargained plans). (The amendment deadlines for SECURE and CARES were extended late last year.)

Article By John D. Arendshorst, Andrea M. Gumushian, and Kristy L. De Vos of Varnum LLP

For more labor and employment legal news, click here to visit the National Law Review.

© 2023 Varnum LLP

IRS Delays Additional Amendment Deadlines for Major Retirement Legislation

The IRS has extended additional deadlines for required retirement plan amendments, similar to the extensions we discussed last month found here. Notice 2022-45 extends the deadline for amending qualified retirement plans to comply with certain provisions of:

  • The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

  • The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (“Relief Act”)

Notice 2022-45 specifically extends the amendment deadlines for Section 2202 of the CARES Act and Section 302 of the Relief Act. Section 2202 of the CARES Act permitted plans to: (1) provide coronavirus-related distributions, (2) increase retirement plan loan sizes, and (3) pause retirement plan loan payments. Section 302 of the Relief Act permitted qualified disaster distributions.

Notice 2022-45 extends the amendment deadlines relating to the applicable provisions in the CARES and Relief Acts for non-governmental qualified plans and 403(b) plans to December 31, 2025. Governmental plans (including qualified plans, 403(b) plans maintained by public schools, and 457(b) plans) are granted further delays depending on the underlying circumstances of the plan sponsor.  These extended deadlines under Notice 2022-45 align with the previous deadline extensions under Notice 2022-33. Accordingly, most plan sponsors will be able to adopt a single amendment to comply with the SECURE Act, BAMA, the CARES Act, and the Relief Act.

Notably, tax-exempt 457(b) plans do not appear to be covered by the relief granted by either Notice 2022-33 or Notice 2022-45. Accordingly, these plans remain subject to a December 31, 2022, amendment deadline.

Article By Brian T. Gallagher, Samantha A. Kopacz, and Samuel L. Parks of Miller Canfield

For more tax law legal news, click here to visit the National Law Review.

© 2022 Miller, Canfield, Paddock and Stone PLC

Debt Ceiling Shrinks for Small Business Bankruptcies

Subchapter V of Chapter 11 of the Bankruptcy Code, which took effect in February 2020, creates a more streamlined and less expensive Chapter 11 reorganization path for small business debtors.  Under the law as originally passed, to be eligible for Subchapter V, a debtor (whether an entity or an individual) had to be engaged in commercial activity and its total debts — secured and unsecured – had to be less than $2,725,625.  At least half of those debts must have come from business activity.

In March 2020, in response to the COVID-19 pandemic, Congress passed the CARES Act, which raised the Subchapter V debt ceiling to $7.5 million for one year.  Congress extended it to March 27, 2022.  A bipartisan Senate bill would make the Subchapter V debt limit permanent at $7.5 million and index it to inflation.  But Congress has not yet passed the legislation or sent it to President Biden for signature.  So, for now, the debt ceiling has shrunk to the original $2,725,625.

Subchapter V has proven popular, with over 3,100 cases filed in the last two years (78 in North Carolina).  Many of those cases could not have proceeded under Subchapter V but for the higher debt limits.  The American Bankruptcy Institute has reported that Subchapter V cases are experiencing higher plan-confirmation rates, speedier plan confirmation, more consensual plans, and improved cost-effectiveness than if those cases had been filed as a traditional Chapter 11.  Anecdotally, most debtors in North Carolina are filing under Subchapter V if they are eligible.

We will continue to monitor legislative activity and report if Congress passes a law to reinstate the $7.5 million debt ceiling.

Article By Lance P. Martin of Ward and Smith, P.A.

For more financial and business legal news, click here to visit the National Law Review.

© 2022 Ward and Smith, P.A.. All Rights Reserved.

Restaurant Businesses Entitled to Favorable Employee Retention Credit Treatment

Restaurant businesses have a new opportunity to take advantage of the employee retention tax credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, even though Congress terminated the credit Sept. 30, 2021, three months earlier than scheduled. Certain restaurant businesses that thought they were ineligible for this tax credit may be entitled to take advantage of it for wages paid up until this COVID-19 economic incentive ended. Such potential opportunity is a result of IRS guidance that was published in August 2021, the month before the credit ended.

The employee retention credit initially allowed a 50% credit for wages paid for the second through fourth quarters of 2020, and then a 70% credit for wages paid for the first through third quarters of 2021, if the business either had its operations suspended due to COVID-19-related government orders or had a significant decline in gross receipts. Wages paid with a loan under the Paycheck Protection Program were not eligible for the credit. The credit was limited to a maximum of $5,000 per employee for 2020, but this cap was increased to $7,000 per employee per quarter for the first through third quarters of 2021 (total maximum credit of $21,000 per employee for 2021). The credit is applied against the employer’s share of payroll taxes, and to the extent the credit exceeded the employer’s share of payroll taxes, the IRS refunds the difference to the employer.

Impact of PPP Loans and Restaurant Revitalization Grants on Gross Receipts

For 2020, a business satisfied the significant decline in gross receipts requirement for credit eligibility if it experienced a greater than 50% reduction in gross receipts compared to the same quarter in 2019. This test was eased for 2021 quarters to include reductions in gross receipts greater than 20%. When the IRS published its initial guidance, it said gross receipts included tax-exempt income. The assumption was that a PPP loan forgiven or a grant under the Restaurant Revitalization Fund (RRF), both treated as tax-exempt revenue, would nevertheless be treated as gross receipts for determining whether a restaurant business had a significant decline in gross receipts for credit eligibility. Therefore, it would have been understandable if a restaurant owner who had a PPP loan forgiven or received an RRF grant assumed that the amount of the forgiven loan or grant needed to be included in the restaurant’s gross receipts calculation, which may have resulted in not satisfying the decline in gross receipts test. However, the IRS published Revenue Procedure 2021-33 in August 2021, which provides that for purposes of determining whether a business has had a significant decline in gross receipts for a quarter, the business may exclude forgiven PPP loans and RRF grants from its gross receipts. This will increase the likelihood that a restaurant business can pass the decline in gross receipts test to allow the business to claim the credit. Even though this credit ended in September 2021, a company can still claim the credit for prior quarters by filing an amended payroll tax return.

Part-Time Employees

Another important factor in claiming the credit deals with the number of average full-time employees a company had in 2019. The critical thresholds to qualify as a “Small Employer” are 100 or fewer average full-time employees in 2019 for determining the credit for 2020 quarters, and 500 or fewer average full-time employees for 2021 quarters. If the conditions to claim the credit are satisfied – either because business operations were suspended by a government order or the company had a decline in gross receipts – a Small Employer gets the credit for wages paid even though the business is open and the employees are working. On the other hand, larger businesses that surpassed these 100- or 500-employee thresholds could take the credit only if it paid its employees even though they were not working. Note that these 100/500 employee thresholds are determined on a company-wide basis, not on a per-location basis that tested eligibility for PPP loan rules.

In August 2021, the IRS published Notice 2021-49, which states full-time equivalents in 2019 are not counted in determining this 100/500 employee threshold. Some restaurant businesses may have thought they were not eligible to claim the credit because their part-time workers, when aggregated into full-time equivalents, caused the businesses to exceed the 100/500 average full-time employee threshold. However, as a result of this IRS notice, they now may be eligible to file an amended quarterly payroll tax returns to claim the credit.

Better yet, Notice 2021-49 states that wages paid to part-time employees are eligible for the credit – even though part-time employees are not counted toward the 100/500 employee threshold. Some restaurant businesses may have assumed the wages paid to part-time workers were not eligible for the credit, and may be able to file amended payroll tax returns to claim the credit for part-time worker wages.

Cash Tips

Finally, Notice 2021-49 also states that an employee’s cash tips of more than $20 per month are wages eligible for the credit. Some restaurant businesses may have assumed that tips paid by customers were not eligible for the credit, and did not include tips in their claim for the credit. If so, they could file amended payroll tax returns to claim the credit. Of course, to claim the credit for cash tips received by employees, a restaurant business must report the tips as income on the employee’s Form W-2.

In summary, restaurant businesses should revisit their employee retention credit analysis with their legal and tax advisors in light of Notice 2021-49. The benefits could be substantial.

This article was written by Riley Lagesen, Landes Taylor and Marvin Kirsner of Greenberg Traurig law firm. For more articles about employee retention credits, please click here.

Stimulus Bill Extends the Availability of Student Loan Forgiveness (US)

Section 2206 of the CARES Act allowed an exclusion of up to $5,250 from an employee’s gross income, if an employer paid principal or interest on an employee’s “Qualified Education Loan”.

Section 2206 of the CARES Act was only designed to be in effect for calendar year 2020. However, The Consolidated Appropriations Act, 2021 (the “CAA”) extends this provision of the law through December 31, 2025.

This provision of the CAA is in Section 120 of Division EE, called “The Taxpayer Certainty and Disaster Tax Relief Act of 2020”.

It does not appear that during 2020, many employers decided to provide student loan forgiveness as an employee benefit. Given the pandemic, that is certainly understandable. However, going forward, it might be something that employers might find more attractive as a recruiting or retention tool. Thus, the following is a brief refresher on this benefit.

Code Section 127 – Education Assistance Programs

Internal Revenue Code (the “Code”) Section 127 has for a very long time, provided an exclusion from an employee’s gross income for reimbursement provided to the employee under an employer’s “educational assistance program”. The maximum amount of tax-free reimbursement is $5,250 per calendar year.

The employee’s education under the program may be reimbursed without regard to whether it relates to the employee’s employment. However, the educational expenses cannot pertain to a sport, game or hobby.

The CARES Act

Section 2206 of the CARES Act amended Code Section 127 to allow an employer to pay for all or part of an employee’s “Qualified Education Loan” as a tax-free benefit, provided that benefit is provided as part of an employer’s education assistance program.

An important point to note is that the employee would not have had to incur the educational expenses while that person was an employee of the employer.

For example, an existing employee with student loan debts that were incurred prior to be being hired, can have that debt forgiven under the plan. Likewise, a newly hired employee with pre-existing student loan debt can also have that debt forgiven under the plan.

Code Section 127 – Employer Plan Requirements

Under Code Section 127, the employer must establish a written plan and communicate the terms of that plan to eligible employees. In addition, the Plan must satisfy the following requirements:

  • The terms of the Plan cannot discriminate in favor of highly compensated employees (“HCEs”).
  • For this purpose, Code Section 414(q) is referenced. In 2021, an employee is an HCE if he or she had compensation of more than $130,000 in 2020. 5% owners of businesses are also considered to be HCEs.
  • Collectively bargained employees must be considered in determining nondiscrimination eligibility requirements, unless educational assistance benefits were the subject of good faith bargaining.
  • Controlled group rules apply for testing nondiscrimination.
  • The calendar year $5,250 maximum exclusion for loan forgiveness must be combined with any other educational assistance that is provided to the employee under the employer’s Code Section 127 plan for that calendar year.
  • The plan cannot permit an employee to choose between taxable compensation and benefits and the educational assistance. Thus, an employee cannot elect salary reduction as a means of participating in the Section 127 plan. Simply put, the benefits under the plan have to be employer paid benefits.

Qualified Education Loans

The rules that define what will qualify as a “Qualified Education Loan” are somewhat complex. The IRS advises taxpayers to review Chapter 4 of IRS Publication 970.

However, in general, the loan had to be incurred for the employee’s costs of attendance (i) in pursuit of a degree, certificate, or other program that would lead to a “recognized educational credential”, and (ii) while carrying a course load at least one-half (1/2) of the normal course load for that particular course of study.

Loans from the government or a financial institution are fine. Loans from family members don’t qualify. Loans from tax-qualified employer retirement plans (e.g. 401(k) Plans) don’t qualify.

Attendance at an “eligible education institution” is required. In general, this will include all colleges, universities, vocational schools and other post-secondary institutions that are eligible to participate in the federal student aid program.

Costs of attendance at the eligible education institution include tuition and fees, books, supplies, transportation, miscellaneous personal expenses, room and board and various other costs.

© Copyright 2020 Squire Patton Boggs (US) LLP

ARTICLE BY Gregory J. Viviani and Joseph P. Yonadi, Jr. of Squire Patton Boggs (US) LLP
For more, visit the NLR Coronavirus News section.

Congress Seeks to Extend Many CARES Act Unemployment Benefits in Pandemic Relief Package

Facing a government shutdown and the expiration of many of the relief programs included in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020, on December 21, 2020, Congress passed a $900 billion pandemic relief package as part of a broader $1.4 trillion government funding bill.  Along with other relief measures, the new legislation includes additional funding for unemployment benefit programs that had previously been funded in the CARES Act.

Unemployment Benefits under the CARES Act

The CARES Act expanded unemployment insurance benefits available to workers, including through the following three programs: (1) Federal Pandemic Unemployment Compensation (“FPUC”); (2) Pandemic Emergency Unemployment Compensation (“PEUC”); and (3) Pandemic Unemployment Assistance (“PUA”).  In short:

  • FPUC provided an extra $600 weekly benefit for all weeks of unemployment between April 5, 2020 and July 31, 2020, in addition to the benefit amount an individual would otherwise be entitled to receive under state law.
  • PEUC provided for an additional 13 weeks of unemployment benefits for individuals who had exhausted unemployment benefits otherwise available under state law.
  • PUA extended unemployment benefits to certain workers traditionally not eligible for unemployment benefits under state law, such as those who self-employed workers, independent contractors, or workers who have a limited work history.

These expanded benefits were all 100% federally funded under the CARES Act.  The CARES Act also provided additional funds and incentives for states to promote short-time compensation (“STC”) or work share programs, which provide employers with an alternative to layoffs.  (For more information about these programs, see our previous post, here: “CARES Act Expands Unemployment Insurance Benefits”).

The Expiration of CARES Act Funding of Unemployment Insurance Benefits

The PEUC and PUA benefit programs were slated to end on (or in many states, shortly before) December 31, which mean that these payments would soon expire without any gradual diminution or replacement benefit.

In addition, the $600 weekly supplement benefit payment under FPUC expired at the end of July.  Although the President signed into law a lesser benefit called Lost Wage Assistance earlier this year, such benefits were only available for a limited time and there has otherwise been no replacement for the weekly supplemental payments.

CARES Act Unemployment Programs under the New Bill

  • FPUC: The bill revives FPUC, but reduces the supplemental weekly benefit by half. As a result, individuals who are unemployed and receiving any unemployment benefits will now be entitled to an additional $300 in benefits for each week of unemployment between December 26, 2020 and March 14, 2021.
  • PEUC: The bill extends PEUC by providing for up to 24 weeks of additional unemployment benefits to eligible individuals who have exhausted the unemployment benefits available under state law. Before the CARES Act, many states capped their benefits at 26 weeks.  The CARES Act provided an additional 13 weeks of PEUC benefits.  With the newest extension to 24 weeks, eligible recipients in many states can now can now receive up to 50 weeks benefits between state programs and PEUC.  These extended benefits are also available through March 14, 2021.  After March 14, 2021, new PEUC claimants will not be eligible for the extra weeks of benefits, but individuals who had been receiving PEUC benefits as of March 14, 2021 will be eligible to continue to receive benefit payments through April 4, 2021.
  • PUA: As with PEUC, the bill extends PUA benefits until March 14, 2021. After March 14, 2021, new claimants will no longer be permitted to apply for PUA benefits, but eligible individuals who were receiving PUA benefits as of that date will continue to receive benefits until April 5, 2021.  Also like PEUC, the duration of PUA benefits for eligible individuals has been extended from 39 weeks (under the CARES Act) to a total of up to 50 weeks.

The bill also extends other CARES Act unemployment provisions to March 14, 2021, including benefits made available to non-profit organizations, incentives for states to waive any one-week waiting periods, and encouraging the use of state STC programs.

New Unemployment Provisions in the New Bill

  • Fraud Provisions: When the CARES Act went into effect, states were faced with processing significant numbers of claims through unemployment systems that in many cases had been underfunded for years, resulting in outdated technology, understaffed offices, and byzantine application processes. In particular, PUA presented a number of challenges because the program required a new application, was separate from any existing benefits, and was available to individuals who otherwise would not have been covered under unemployment programs.  As a result, it was widely reported that PUA benefits were not being properly processed and paid, either due to fraud or confusion on part of both the states and applicants as to who was eligible for certain benefits and how to apply.

In an apparent effort to address these issues, the new bill describes in detail the documentation required to apply for PUA benefits.  As of January 31, 2021, new applicants will have 21 days to submit documentation substantiating their employment, self-employment, or planned commencement of employment/self-employment.  Individuals already receiving PUA benefits prior to January 31, 2021 must provide documentation within 90 days of January 31.  In addition to the new documentation requirement, states now must have procedures in place to validate the identity of claimants and to ensure timely payments.  The federal government will cover costs of these procedures.

Additionally, states must have a process in place for employers to report to the state agency instances in which a former employee refuses to return to work or refuses to accept an offer of suitable work without good cause (which renders the individual ineligible for unemployment benefits).

  • Mixed Earner Unemployment Compensation: Individuals who receive at least $5,000 a year in self-employment income now will receive an additional $100 weekly benefit, in addition to the benefit amounts they otherwise would be entitled to receive from traditional employment under state law.  Previously, such individuals were not eligible for PUA benefits if they received some regular state unemployment benefits for traditional employment, and regular state law benefits did not consider self-employment in calculating the benefit amounts. The new federally-funded “mixed earner” benefit is in addition to the $300 supplemental weekly benefit under FPUC, and also expires on March 14, 2021.

Because the bill was not passed until the final week of the CARES Act programs, it is possible that the extensions and new benefits may not be implemented immediately.   If the CARES Act rollout is any indication, it is likely that there will be additional federal guidance released to address the implementation of these unemployment provisions and answer certain questions the states may have.  Employers and claimants should monitor state websites for any applicable unemployment programs and up-to-date guidance.  Additionally, we will continue to monitor these development and inform our readers of any new guidance in this area.

© 2020 Proskauer Rose LLP.
For more articles on the CARES Act, visit the National Law Review Coronavirus News section.

COVID-19 Update: CDC Order Temporarily Halts Residential Evictions Nationwide until December 31, 2020

In response to the coronavirus pandemic, the federal government, as well as many States, have enacted eviction and foreclosure moratoriums in an effort to keep homeowners and renters in their homes and slow the spread of Covid-19.  One such moratorium was included by Congress in the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, which was enacted earlier this year.  The CARES Act provided, among other things, for a 120-day eviction moratorium for tenants who participated in federal housing assistance programs or who lived in a property that was federally related or financed.  The CARES Act eviction moratorium, which expired on July 24, 2020, prohibited landlords from commencing new evictions proceedings or charging late fees, penalties and/or other charges against eligible tenants for non-payment of rent during the moratorium period.

This week, citing concerns with the continued spread of Covid-19, the Center for Disease Control and Prevention (the “CDC”) issued a new order temporarily halting residential evictions nationwide through December 31, 2020 (unless extended).  The order would prohibit landlords, owners of residential properties, or any other person with the right to pursue an eviction action, from commencing eviction proceedings against any eligible non-paying tenant affected by the Covid-19 pandemic. The new CDC order does not, however, preclude evictions for reasons other than non-payment of rent or release qualifying tenants from their obligation to pay rent or to comply with the other terms of their rental agreement.  In addition, the order does not preclude foreclosures of home mortgages.

Unlike the CARES Act, the protections provided in the CDC order are available to all qualifying residential tenants and not just those tenants who receive federal housing assistance or who lived in a federally related or financed property.  In addition, the order does not prohibit landlords from imposing late fees, fines and/or from charging interest on unpaid rent while the moratorium is in effect.

In order to qualify, tenants must submit a “Declaration” to their landlord, the owner of the residential property, or any other person who has the right to commence an eviction action, claiming their eligibility under the new CDC order.  The declaration must include the following statements from each adult tenant listed on the rental agreement: (1) that the tenant has used his/her best efforts to obtain all available governmental rental or housing assistance; (2) that the tenant either (i) expects to earn no more than $99,000 (or $198,000 for joint filers) during the 2020 calendar year, (ii) was not required to file an income tax return with the IRS for the year 2019, or (iii) received an Economic Impact Payment under the CARES Act; (3) that the tenant is unable to make rental or housing payments when due as a result of a substantial loss of household income, loss of hours of work or wages, being lay-off or due to “extraordinary” out-of-pocket medical expenses; (4) that the tenant is using his/her best efforts to make partial rental payments, taking into account such tenant’s other non-discretionary expenses; and (5) that the eviction of such tenant would likely result in such tenant being homeless or such tenant having to move into a “closed quarters” shared living space.  Failure by any landlord to comply with the CDC order will result in criminal penalties.

The CDC order will only be applicable to those States, local, territorial, or tribal areas that do not already have an eviction moratorium in place that provides for the same or greater tenant protection than those provided in the CDC order.

© Copyright 2020 Cadwalader, Wickersham & Taft LLP
For more articles on real estate, visit the National Law Review Real Estate, Transportation, Utilities and Construction Law News section.

The Federal Government Is Taking Action Against COVID-19 Fraud

The federal government has responded to the coronavirus (“COVID-19”) pandemic with legislation to aid individuals and struggling businesses. One of the many laws created was the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a $2 trillion federal appropriation addressing the economic fallout caused by COVID-19. Many are rightfully concerned about individuals aiming to take advantage of the vulnerability, panic, and available federal dollars during this time. In response, the federal government has vowed to aggressively take action against COVID-19 related fraud.

Fraud Committed Against Individuals

The Department of Justice (“DOJ”) announced its first enforcement action against COVID-19 fraud in March 2020. A website, coronavirusmedicalkit.com, was offering access to World Health Organization (“WHO”) vaccine kits for a shipping cost of $4.95. However, no vaccine currently exists nor is a vaccine currently being distributed by the WHO. Once alerted of the website’s existence, U.S. District Judge, Robert Pitman immediately issued an injunction preventing any further public access to the site. The site operators are currently facing federal prosecution.

Fraud Committed Against the Federal Government

Opportunists are not only acting to deceive the public but are also acting to defraud the federal government. Recently, Samuel Yates, a Texas native attempted to defraud $5 million in federal funds. The Small Business Association (“SBA”) is providing loans to businesses through a Paycheck Protection Program (“PPP”). The PPP allows employers to continue paying their employees during the pandemic. Yates applied for two loans. In one loan application, he sought $5 million claiming to have 400 employees with a $2 million monthly payroll expense. In another application, he claimed to have only 100 employees. Each application was submitted with a falsified list of employees created by an online name generator, and forged tax records. Yates was able to obtain $500,000 in loan proceeds before his scheme was uncovered. He is currently facing federal prosecution for bank fraud, wire fraud, false statements to a financial institution, and false statements to the SBA.

Christopher Parris, a Georgia resident, also attempted to defraud the federal government by selling millions of non-existent respirator masks. Unlike Yates, Parris was able to make millions on sales orders by misrepresenting himself as a supplier who could quickly obtain scarce protective equipment. His plan was uncovered just a few weeks ago after attempting to sell masks to the Department of Veteran Affairs (“VA”). The VA became suspicious of the price—which was about 15 times what it was paying amid the shortage, and alerted their Inspector General who brought in Homeland Security. Over $3.2 million was seized from Parris’ bank account related to this scheme, and he is currently facing federal prosecution for wire fraud.

Although enforcement action has been taken against individuals, companies should take note that fraud is being prioritized and aggressively prosecuted against businesses as well. Just last month, the Securities & Exchange Commission (“SEC”) charged two companies with issuing misleading claims to the public. The first represented that it could slow the transmission of COVID-19 through thermal scanning equipment that could quickly detect individuals with fevers and would be immediately released in each state. The other offered a finger-prick test kit that could be used from home to detect whether someone was COVID-19 positive. Both claims were untrue and each company is facing federal charges for violating the antifraud provisions of the federal securities laws.

These federal efforts mark the beginning of a shift, holding both individuals and companies accountable for COVID-19 related fraud. The Department of Homeland Security has noted that those taking advantage during this vulnerable time will inevitably increase. Inter-agency efforts, swift enforcement, and emerging legislation will likely follow in an effort to protect the public against all levels of COVID-19 related fraud. As they have during previous economic crises, whistleblowers will play a critical role in aiding these enforcement efforts.

Katz, Marshall & Banks, LLP

For more on COVID-19 related fraud, see the National Law Review Coronavirus News section.