In business, much as in life, there are things outside our control. Sudden social, political or economic

change can dramatically alter the landscape. When that happens- and inevitably it does- many leaders are presented with similar difficult circumstances, and where some succeed, others fail. Valuable lessons can be learned by observing those who get stuck as well as those who manage to keep moving forward.

Talk to any transformational leader and they will tell you that failure is something you need to get comfortable with if you want to be great. If it’s true that the greatest leaders once failed, then what exactly does it mean to fail, and, more importantly, how do we measure success?

Sports psychology explains what top athletes all have in common: they are always competing against themselves. They don’t play to beat the other players; they strive to outdo their own performance. If they lose, they respect the competition rather than gripe about unfair conditions. Every match is an opportunity to hone their skills. After every game, win or lose, they evaluate the strengths and weaknesses of their performance and adjust their efforts accordingly.

This model works in business as well. The best business leaders are competing against themselves. They understand that in business there is no absolute winner or loser, because the game is infinite. The infinite‐minded player understands that sometimes you have the better product, and sometimes “they” do. And it’s okay because this game isn’t over until you say so; it keeps going as long as you keep going.

When the going gets tough, the only way business will get better is when you do something better. The markets, the economy and the competition are not in your control. You can hope for one, or all of those things to change, or you can change what is in your control‐ your attitude, your process and your effort. Jeff Bezos often muses about how customer obsession is key to Amazon’s growth. Basketball superstar Kobe Bryant wrote about being fueled by his obsession to be the best, and Dropbox CEO Drew Houston talks about how critical it is to be obsessed with solving a problem that matters to you. What inspires these kind of “obsessions”?

“The most successful, hardest‐working people I know don’t work hard because they’re disciplined,” says Houston. “They work hard because they’re enjoying solving a problem they really care about…it’s not about pushing yourself — it’s about finding the thing that pulls you.”

If you are going to focus on a problem, find one you are enthusiastic about solving and then get excited about pursuing your goal. To be a success, you don’t have to be the best, you just have to be committed to doing something a little better all the time.

In business, much as in life, there are things outside our control. Sudden social, political or economic change can dramatically alter the landscape. When that happens- and inevitably it does- many leaders are presented with similar difficult circumstances, and where some succeed, others fail. Valuable lessons can be learned by observing those who get stuck as well as those who manage to keep moving forward.

Talk to any transformational leader and they will tell you that failure is something you need to get comfortable with if you want to be great. If it’s true that the greatest leaders once failed, then what exactly does it mean to fail, and, more importantly, how do we measure success?

Sports psychology explains what top athletes all have in common: they are always competing against themselves. They don’t play to beat the other players; they strive to outdo their own performance. If they lose, they respect the competition rather than gripe about unfair conditions. Every match is an opportunity to hone their skills. After every game, win or lose, they evaluate the strengths and weaknesses of their performance and adjust their efforts accordingly.

This model works in business as well. The best business leaders are competing against themselves. They understand that in business there is no absolute winner or loser, because the game is infinite. The infinite‐minded player understands that sometimes you have the better product, and sometimes “they” do. And it’s okay because this game isn’t over until you say so; it keeps going as long as you keep going.

When the going gets tough, the only way business will get better is when you do something better. The markets, the economy and the competition are not in your control. You can hope for one, or all of those things to change, or you can change what is in your control‐ your attitude, your process and your effort.

Jeff Bezos often muses about how customer obsession is key to Amazon’s growth. Basketball superstar Kobe Bryant wrote about being fueled by his obsession to be the best, and Dropbox CEO Drew Houston talks about how critical it is to be obsessed with solving a problem that matters to you. What inspires these kind of “obsessions”?

“The most successful, hardest‐working people I know don’t work hard because they’re disciplined,” says Houston. “They work hard because they’re enjoying solving a problem they really care about…it’s not about pushing yourself — it’s about finding the thing that pulls you.”

If you are going to focus on a problem, find one you are enthusiastic about solving and then get excited about pursuing your goal. To be a success, you don’t have to be the best, you just have to be committed to doing something a little better all the time.

Updated May 26^th, 2020

On Monday, May 11^th, Roth&Co hosted a webinar on the topic of maximizing Paycheck Protection Program loan forgiveness. It was presented by Ahron Golding, our in-house tax controversy attorney, and moderated by Zacharia Waxler, Roth&Co Co-Managing Partner. There were opening remarks by Rabbi Abba Cohen, Vice President for Government Affairs and Washington Director and Counsel of Agudath Israel of America. You can view a full video of the webinar here.

Due to lack of guidance from the SBA, there were some questions left unanswered during the webinar. The SBA has recently released their PPP Forgiveness Application, which includes instructions and clarifies some of these questions. For a copy of the forgiveness application from the SBA, see here. For your convenience, we have recapped the conversation below and responded to frequently asked questions, including the recent clarifications from the SBA. For a copy of the forgiveness application from the SBA, see here.

Please note that we are sharing what we currently know about PPP forgiveness, however we are still waiting on guidance regarding the many unknowns. This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice.

Secretary of Treasury Steven Mnuchin has indicated that loans over $2 million will be reviewed or audited for compliance. With this in mind, we recommend keeping detailed documentation as you make use of PPP funds to ensure you adhere to the guidelines and maximize forgiveness.

Determining & Documenting “Necessity” 

The purpose of the PPP Program is to assist businesses and nonprofits facing financial difficulty with retaining workers, maintaining payroll or making mortgage interest, lease and utility payments. Each PPP applicant is required to sign a certification that specifies that: “the current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The SBA guidance further clarifies that this takes into account current business activity and other sources of liquidity to support operations in a way that is not significantly determinantal to the organization. We therefore recommend documenting why the loan is necessary. This could be a memo or board meeting minutes where cashflow and forecasting are reviewed and makes clear that financial assistance to maintain operations is needed. The SBA has recently clarified that any loan under $2 million will be deemed to have been made in good faith.

If, upon further consideration, you determine that the PPP loan you received is not necessary under these guidelines, the funds can be returned under “safe harbor” amnesty until May 18th.

Note: PPP loan amounts may become public information as per the Freedom of Information Act, however this is not the case with tax information.

Maximizing Forgiveness – In General

The following guidelines were issued to ensure full or maximum forgiveness:

• A minimum of 75% of received funds must be utilized for payroll.
• The remaining 25% of the funds can be used to pay mortgage interest, rent, and utilities.
• For full forgiveness, businesses must maintain employee headcount and salary levels.
• Eligible expenses need to be incurred and paid over the eight-week period beginning from the day of the first PPP loan disbursement.

Payroll Costs: The Details 

• Payroll includes salary, vacation, leave, health and retirement benefits. There is a $100,000 annual salary maximum per employee (which translates to $15,385 maximum for the 8 weeks) allowed for forgiveness.
• Shuttered businesses may pay employees that are not currently working. They are considered full-time employees (FTE) if you pay full wages.
• Wages paid as parsonage is a payroll cost, and is considered cash compensation which is subject to the $100,000 annual salary cap.
• The $100,000 annual salary cap is only a cap on cash compensation. Therefore employee benefits such as retirement contributions and health insurance are not limited by the $100,000 cap and are allowable as an additional payroll cost.
• Businesses may use PPP funding to pay employees’ sick leave, unless they are already taking a credit for Family Medical Leave or Emergency Paid Sick Leave made available under the Family First Coronavirus Response Act.
• Payments to 1099 contractors are notconsidered payroll costs.
• Sole Proprietors (reported on Schedule C) can take a salary, which is also subject to the $100,000 annual cap (resulting in $15,385 maximum forgiveness for the 8 weeks). Retirement contributions, State and local taxes and health insurance for owners/partners/Sole proprietors are not forgivable payroll costs.
• Cash distributions to active partners reported on a K-1 are allowable so long as it is allocated during the eight-week period (subject to same $100,000 annual cap).
• There is a maximum of $15,385 of forgiveness (8 weeks of 100k annualized) per individual. If the same individual is an owner of 3 business, he can only receive forgiveness once
• If a husband and wife are both owners, they are each most likely subject to their own $100,000 annual salary cap.

The Unknowns: What SBA Has Yet to Clarify 

The following questions and considerations do not have clear guidance from the SBA.

• Can we give raises or bonuses in order to reach the 75% payroll criteria for forgiveness? Yes
• Is overtime pay allowed for employees? Is there a cap on the number of hours per employee based on other pay periods? Yes
• Is an employer allowed to offer incentives to employees to entice them to return to work? Incentive pay has a good chance of being forgiven so long as it was paid during the eight-week period and documented correctly with concrete reasons as to why it was necessary? Yes, incentive or hazard pay is a forgivable payroll expense, as long as it was paid during the eight-week period
• How is Qualified Tuition Reduction considered? This has not been clarified by the SBA. We have reason to believe that this falls under “other fringe benefits,” and would be included as an eligible payroll expense. QTR is not addressed on the newly released forgiveness form. We await further guidance from the SBA.

Expenses Paid & Incurred in the Covered Period 

The statute states that, “costs incurred and payments made during the covered period” are eligible for forgiveness. How do we determine “incurred and paid” for the purpose of forgiveness?

The SBA has now clarified that Payroll expenses do not have to be both “paid and incurred” in the exact eight week period (56 days) that begins on the day that the first loan proceeds are received. The borrower is allowed to select the “Alternative Payroll Covered Period,” to coincide with their payroll schedule. The alternative pay period begins on the first day of the borrower’s first pay period following the date that they receive their first PPP funds and goes for the next 8 weeks.

For example, if you received your PPP funds on May 7, 2020, and the first day of your next pay period is May 15, 2020, you may elect to count the payroll costs for the 8-week period beginning May 15, 2020, rather than from May 1. In other words, you can start your 8 week period for payroll costs on your next regular scheduled payroll date after you receive the funds. This guidance ensures that companies will get 8 full weeks to use their loan for payroll costs, and get forgiveness for it.

This would answer questions like:

If I receive funds on May 15th, can I use those funds to make payroll which covers the preceding 2 weeks?

Yes. According to the forgiveness application, Payroll is considered paid on the day the paychecks are distributed or the employer originates the ACH transaction. Therefore, you could receive PPP money on May 15 and immediately pay – as part of your regular payroll process – wages that had been earned by the employees for the previous two weeks, and include the amounts in the forgiveness calculation because the amounts have been paid within your 8 weeks.

What if my 8 week period ends on June 23, but I don’t usually process payroll for that period until June 30? Should I accelerate my last payroll (which is already incurred) to ensure that it falls in the 8-week period?

You don’t have to accelerate, and it will still be forgiven. This is because payroll costs incurred for your last pay period of the 8-week period are eligible for forgiveness as long as they are paid no later than the next regular payroll date.

Can I pay ahead for benefits (such as medical) in order to maximize the forgiveness?

We await further guidance.

Can I pay the previous month’s rent if I haven’t paid it yet? Yes

Can I pay May’s rent if we received funds on May 7th?

Yes. Since the rent will have been paid during the 8 week period, it will qualify for forgiveness.

Note: The “covered period” for expenses other than payroll remains the 8 week period from when the funds were received by the borrower, regardless of whether they chose the Alternative period for payroll purposes. Therefore, if you elect the Alternative period, you will have two different 8 week periods to keep track of.

Other Expenses (up to 25%)

• The remaining 25% of the funds can be used to pay mortgage interest (not including prepayment), rent, and utilities in force before February 15th, 2020.
• For non-payroll costs such as mortgage interest, rent and utilities, to qualify for forgiveness, these expenses must either be: 1) paid during the 8-week covered period, or 2) incurred during the 8-week period, and paid by its next regular due date, even if that due date is outside the 8-week period.
• Mortgage Interest: Amounts paid in interest on a mortgage obligation that the company incurred in the ordinary course of business before February 15th, 2020.
• Rent: Rent paid pursuant to a lease agreement in force prior to February 15th, 2020.
• Utility payments: Payment for services including the distribution of electricity, gas, water, transportation, telephone and internet access for which service began before February 15th, 2020. This also includes payments of a business’s car leases, gas, cellphones, Internet and landline bills.
• Keep away from anything that looks like business expansion.

Forgiveness Reduction Issues

For full forgiveness, businesses must maintain prior employee headcount and 75% of salary levels.

How to calculate your prior headcount:

Step 1: Calculate your average full-time equivalent (FTE) headcount by adding:

1. A) Total amount of full-time employees (defined as those working 40+ hours a week), plus
2. B) Total amount of hours worked per week by part-time employees, divided by 40 (to add up the part timers)

Step 2: Choose the time period with the lower average FTE headcount:

1. A) February 15th – June 30th 2019
2. B) January 1st – February 29th 2020

You must have the same level now, from what you had prior (based on the above calculation).

• If an employer rehires previously laid-off or furloughed employees by June 30th, the employer will not be penalized for the reduction. However, employers should keep in mind that they still need to ensure that 75% of their loan be paid towards payroll costs, to maximize forgiveness
• Businesses may “replace” an employee to maintain headcount. The total number of employees needs to remain the same – not the employees themselves
• Employers may not reduce the salaries of those earning less than $100,000 annually by more than 25%. However, they can cure that issue by raising the salaries back up before June 30th.
• The employer will not be penalized for reductions in the following circumstances: (1) any positions for which the Borrower made a good-faith, written offer to rehire an employee during the 8 weeks which was rejected by the employee; and (2) any employees who (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested a reduction of their hours. Employer will, however, still need to meet the 75% payroll cost requirement. They just won’t be penalized for reduction of headcount or salary.  In order to prevent being penalized for reduction of headcount or salary in such cases, the SBA is now requiring that the employer inform the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer. If the employee voluntarily requested a schedule reduction, the employer should keep documentation of such request.

Adding It All Up: Financial & Tax Considerations  

Here are some additional details on what can and cannot be included in your expense totals:

• Employer-side payroll taxes are not forgivable.
• The IRS has currently ruled that payroll and other expenses paid which eventually lead to forgiveness, will not be deductible as business expenses by the employer. Members of Congress are currently attempting to make a rule change to allow the expenses to be deductible. Stay tuned.
• The CARES Act permits employers to defer the payment of the employer’s portion of payroll taxes. The employer will need to deposit half of these deferred payments by the end of 2021 and the other half by the end of 2022. If an employer receives forgiveness on a PPP loan, it is no longer eligible for this deferral. However, the deferral is still allowed until the date of forgiveness. At that point, employers will need to make regular payroll tax deposits.

Loan Forgiveness Timeline 

The lender is required to issue the loan forgiveness decision within 60 days from the application of forgiveness.

We will continue to keep you updated as more information becomes available.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.

While the entire business community spent the past few weeks focused on getting SBA loans, we want to make sure the significant tax credits and deferrals made available by the CARES Act and other regulatory changes are not overlooked. Below, we have compiled a checklist of the provisions and their eligibility requirements that can translate into substantial savings.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon, for legal or tax advice.

EMPLOYEE RETENTION CREDIT

Effective as of March 12th, 2020, the Employee Retention Credit under the CARES Act was created to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in qualified wages per employee who is paid by employers whose business has been financially impacted by COVID-19.

Who is eligible to receive this credit?

Anyone who has received a PPP loan, whether or not it is forgiven, is ineligible for this credit.

All employers, including tax-exempt organizations, that meet one of the following conditions are eligible for the credit:

A. Operations were fully or partially suspended during any calendar quarter in 2020, due to government orders. This includes government-mandated shutdowns, curfews/limits on hours and workforce or a lack of supplies due to vendor closures. This does not include voluntarily closure of a business.

B. A significant decline in gross receipts experienced in a calendar quarter. A significant decline is defined as a 50% decrease of gross revenue from the same quarter in 2019. The duration of a significant decline includes all quarters that follow in 2020, until the quarter after gross revenue surpasses 80% of 2019 revenue.

How do I calculate the credit amount?

The credit is calculated as 50% of qualified wages (including health insurance) paid to eligible employees in a calendar quarter, up to a maximum wage of $10,000 annually. Qualified wages vary based on the size of an organization:

Organizations with less than 100 employees:

Qualified wages are wages paid to any employee during quarters that meet the eligibility conditions above.

Health insurance expenses are included as a qualified wage.

Organizations with more than 100 employees:

Qualified wages are wages paid only to an employee that is not providing services due to partial or full suspension of operations, or reduction of income. This amount cannot exceed that of wages paid 30 days prior to March 12th. This credit can also be used to cover wages for employees working reduced hours where the employer continues to pay their full-time wages. However, the credit is proportionate to the hours of no service.

If an employer pays for health insurance for employees that are not working (whether or not they have received other wages), the entire health insurance premium is eligible. If the employee is working reduced hours, health insurance is prorated in proportion.

The maximum credit is $5,000 per employee per year.

How do I claim this credit?

To claim this credit, reduce your payroll tax deposits by 50% of your qualified wage. If the credit is higher than the tax deposits, an accelerated credit can be requested through Form 7200 without having to wait for your 941 filing.

Please note: This credit does not get calculated as income, but rather as a reduction of wages, and will therefore decrease your wages for 199A calculation.

PAYROLL (SOCIAL SECURITY) TAX DEFERRAL

The CARES Act allows a deferral of the employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of the CARES Act’s enactment, through December 31st, 2020.

Who is eligible?

All organizations, including those that received PPP loans, are eligible.

When will the deferred taxes become due?

A payment of 50% of the deferred payroll taxes will be due on December 31st, 2021, and the remaining 50% by December 31st, 2022. If an employer receives forgiveness for a PPP loan, it is no longer eligible for this deferral. However, the deferral is still allowed until the date of forgiveness. At that point, employers will need to make regular payroll tax deposits.

How do I claim this deferral?

The way to apply this credit is as follows: reduce your payroll tax deposit by the employer portion of Social Security tax due. If you do not pay deposits, you can simply reduce the amount you pay when your 941 form is filed.

EMERGENCY PAID SICK & EXPANDED FAMILY MEDICAL LEAVE CREDITS

The Families First Coronavirus Response Act ensures that employees are eligible for two weeks of paid sick leave and use of 12 weeks of Family and Medical Leave Act leave for several circumstances related to COVID-19. Employers can claim a Social Security tax credit to offset the cost of providing expanded FMLA and emergency paid leave to their employees. The refundable credits would apply to all wages paid under these programs, effective from April 1st through December 31st, 2020.

Who is eligible?

Employers with fewer than 500 employees, with employees on leave due to:

• COVID-19 illness
• Quarantine
• Caring for an individual in quarantine
• Caring for a child whose school is closed, or whose childcare provider is no longer available due to COVID-19 illness

Please view this article for provision specifics.

How can I claim this credit?

Employers who pay paid sick and emergency family medical leave in accordance to FFCRA are entitled to a dollar-for-dollar tax credit. The credit is applied by reducing your payroll tax deposits by the amount paid to employees.

Employers can potentially take advantage of all three tax credits and deferrals. If the credit amount is higher than the tax deposits, an accelerated credit through Form 7200 can be requested without having to wait for your 941 filing.

We will continue to keep you updated as more information becomes available.

This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.

Sustainability reports explain the impact of an organization’s activities on the economy, environment and society. During the novel coronavirus (COVID-19) pandemic, stakeholders continue to expect robust, transparent sustainability reports, with a stronger emphasis on the social and economic impacts of the company’s current operations than on environmental matters.

Investors, lenders and even the public at large may pressure companies to issue these supplemental reports. But the information they provide isn’t based on U.S. Generally Accepted Accounting Principles (GAAP). So, is it worth the time and effort? One way to make your company’s report more meaningful and reliable is to obtain an external audit of it.

What is a sustainability report?

In general, a sustainability report focuses on a company’s values and commitment to operating in a sustainable way. It provides a mechanism for communicating sustainability goals and how the company plans to meet them. The report also guides management when evaluating corporate actions and their impact on the economy, environment and society.

During the COVID-19 crisis, stakeholders want to know how your company is handling such issues as public health and safety, supply chain disruptions, strategic resilience and human resources. For example:

• How is the company treating employees during the crisis?
• Are workers being laid off or furloughed — or is management implementing executive pay cuts to retain its workforce?
• What is the company doing to ensure its facilities are safe for workers and customers?
• Is the company donating to charities and encouraging employees to participate in philanthropic activities during the crisis, such as volunteering at food pantries and donating blood?

Stakeholders want assurance that companies are engaged in responsible corporate governance in their COVID-19 responses. Sustainability reports can showcase good corporate citizenship during these challenging times.

Why do you need an external audit?

There aren’t currently any mandatory attestation requirements for sustainability reporting. That means companies can produce reports without engaging an external auditor to review the document for its accuracy and integrity. However, without independent, external oversight, stakeholders may view sustainability reports with a significant degree of skepticism. That’s where audits come into play.

Many organizations have developed standardized sustainability frameworks, including the:

• Carbon Disclosure Project (CDP),
• Dow Jones Sustainability Index (DJSI),
• Global Initiative for Sustainability Ratings (GISR),
• Global Reporting Initiative (GRI),
• International Integrated Reporting Council (IIRC),
• Sustainability Accounting Standards Board (SASB), and
• United Nations’ Sustainable Development Goals (SDG).

External auditors can verify whether sustainability reports meet the appropriate standards, and, if not, adjust them accordingly. In addition, numerous attestation standards govern the audit of a sustainability report, including those from the American Institute of Certified Public Accountants, the International Standard on Assurance Engagements and the International Organization for Standardization.

Need help?

Many companies agree that a sustainability report is an important part of their communications with stakeholders. But there’s little consensus on the approach, topics or non-GAAP metrics that should appear in sustainability reports. We understand the standards that apply to these supplemental reports and can help you report sustainability matters in a reliable, transparent manner.