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More so than any time in recent history, the COVID-19 pandemic has enabled company leaders to reflect on the notion of becoming compassionate leaders.

Sara Elizabeth Hyre, head of Clark Nuber’s Tax Department, and Tom Sulewski, head of our Audit Department, are two leaders who have overseen their service groups during a time of unprecedented change in the industry – walking a tightrope of meeting client expectations and ensuring their employees are cared for.

Here’s what these shareholders had to say about the enduring strength of compassionate leadership:

Thank you both for sitting down to talk with us today. To start us off, please share a little bit about your journey at Clark Nuber and how you became shareholders.

Sara Elizabeth Hyre (SEH): Well, I actually started my public accounting career at Deloitte. I spent about nine years there before coming to Clark Nuber as a senior manager. I primarily came to work with the not-for-profit team, because it was growing, and that was an area I wanted to spend more time in. And it was great! I got to spend 100% of my time doing that when I came to Clark Nuber.

And did you see yourself becoming a shareholder when you moved to Clark Nuber?

SEH: I did! I never personally saw myself as a partner at Deloitte, but the leadership opportunity was part of the selling point when moving to Clark Nuber.

Thank you, Sara Elizabeth. What was your start like, Tom?

Tom Sulewski (TS): Well I did start here. And it’s totally different for me than Sara Elizabeth’s story. I came straight out of school and, quite honestly, had no idea what I was doing. (Laughter)

But we’re talking about empathetic leadership. And I think sharing our own stories is part of that equation. I think you have to make yourself real.

So, I started at the [University of Washington], then came to Clark Nuber 30 years ago. I probably didn’t have any intention to even stay in public accounting for more than a few years. But a real turning point for me was around my one-year anniversary. It was this tiny condominium audit, and the manager and the shareholder came to me and said, “We’ve got this new account, and we think we can send you out there to run this thing.” It was such an empowering moment for me, that they would trust me to do that. It helped reaffirm where I was.

And as I went through my career, it felt like every three or four years I had an opportunity to go somewhere else or do something new. But I kept finding reasons to stay, and somewhere along the line, I’m suddenly being approached to lead the audit department!

In your opinion, what does it mean to be a compassionate leader?

SEH: Well, Tom referred to just trying to be as real as possible, and I think that’s a strong way to create trust. I try to be as honest and transparent as I can.

It’s also being able to put yourself in others’ shoes. Something Tom and I have talked about a lot is assuming the best. Most people have good intentions. And there’s always a story behind every problem. I try to assume that I just don’t know the full story yet, rather than assuming the worst.

TS: Yes, being empathetic, being real. I think part of that is demonstrating that you’re a real person with all the failings that come with it. The notion that, somehow, we shareholders know all the answers, and that we’re the end-all, that’s just not realistic. And it’s too much of a burden to put on any person.

The truth is the answers are out there somewhere. You have to create an environment where people can throw ideas out there, or bring up concerns, and know they’re not just going to be shot down. They need to know they can come to you and talk through whatever’s going on.

Why is compassion an important trait in a leader?

TS: I think nowadays, especially during the pandemic, there’s a very thin line between your personal world and your work world. We used to have this big wall between the two worlds. But the personal world is messy! (Laughter) You have sick family members, house repairs, maintenance people coming by. And if you’re trying to pretend like that’s not happening for everybody because you see them at work with their button-down shirts on, that’s just scratching the surface of what makes them, them.

So, I think having more empathy and understanding is very important. Because it is very hard to focus on a technical accounting or tax issue when I’ve got trouble at home and something’s going on personally. You can’t pretend that doesn’t happen to other people, and if they’re having a bad day at work, there’s probably a whole story there, as Sara Elizabeth said.

SEH: The thing that popped into my head is that people work for people, not companies. If you think management doesn’t care about you personally, then why would you stick around for that? So, I think some amount of compassion is required in any leader if they’re hoping to hold on to good people.

And to Tom’s point, everyone’s got something in life that periodically comes in and creates disruption. And the beauty is that we’re all a big team here and we try to cover for each other, and we try to make accommodations as best we can. We understand things happen.

Would you say compassionate leadership can be learned? Or is it something you’re born with?

TS: I buy into the emotional intelligence theories; that you can teach it and practice it and get better at it. Some people have it more naturally out of the gates, but I do believe it can be taught and demonstrated, so others can replicate it.

SEH: Yeah, I agree with that. It’s just like anything else that you may feel you’re not that good at. If it’s important, and you feel the need to improve, then you can cultivate it.

How have you tried to cultivate compassion in yourselves as leaders?

SEH: For me, it’s pausing before responding. Whether it’s an email, or someone comes to me with a problem. The time where I’m not feeling very compassionate about things, that is when I have to take a pause. And I try to step back and look at the bigger picture.

TS: I was thinking about that concept around building up trust and addressing something when it’s small. That whole manager skill of, “Let’s address little things now, so they don’t become big scary things that lead to ugly conversations later.” Or asking, “What’s getting in your way this week that’s stopping you from accomplishing what we talked about?”

And through those conversations, people get more comfortable telling you when there’s something outside work that’s affecting them. But if you’re blind to those things, it just seems like someone’s dropping the ball.

2020 was chaotic, to say the least, how has being a compassionate leader served your team during this time? And do you think compassionate leaders have a leg up in times of struggle?

TS: Well, 2020 sucked, that’s true. (Laughter)

SEH: It was so hard, because, before this, I could expect a certain percentage of our people to be going through some personal issues. But suddenly, it was like 90% of our people were going through personal issues. And all we could do was be as flexible as possible.

And Tom, I know we both heard of other private companies that were saying to their employees, “Yes, you still you have to be here at this time,” and “No, we’re not changing anything.” And that’s not our style at all. We were trying to be as flexible as possible. And you know, that’s still hard when you have business and client needs to balance as well. But I think our people were really pleased. And we’re not on the other side of this yet, but I think people feel like they were treated fair.

So, does compassion give people a leg up? I think so. Because, when this is over, even before it’s over, people can leave. And if they don’t feel like leadership has been accommodating, or understanding, or compassionate, they’re going to walk.

TS: One of the most frightening days I had to deal with last year was in the middle of March, right before the pandemic stay-at-home order. We had auditors out there working at clients’ offices, and I could just feel this thing starting to close in. And I realized that, out of best conscience, we need to pull everybody back. They were in too many environments where we didn’t know the situation. So, I put together a conference call, and I said, “Hey everybody, jump on this.”

So, I paced around in my office and walked the teams through that I wanted them back from other peoples’ offices and either working in our offices or from home. And that was scary, because I had no idea what the impact would be on our business. There was always the risk that I was overreacting. But I wanted it to be okay to express these fears and feelings and assure our employees that there was a plan in place.

Do you know, relative to other firms, how quick we were to go fully remote?

SEH: I feel like it all happened at the same time. And shortly after that, the deadline got extended. So suddenly we’re balancing all new schedules and people are wondering, “How on earth am I going to work busy season from my house?”

And so, to bring it back to compassion, this is all a balancing act. I didn’t set too many boundaries in place, but I told everyone to figure out what works best for them while still meeting our clients’ needs.

TS: I think that’s a perfect example. Trying to strike the balance and empower people.

And I’ll say on the compassion topic, and how we handled 2020, it feels really good to me, as someone who recruits, to be able to go out there with a straight face and tell those students what we did do and what we didn’t do. That’s an easy presentation. And I think it gets attention from people who are looking for the right firm for them.

Person-to-person interaction has become much harder in 2020-2021. How has your approach to compassionate leadership evolved in the remote work era?

SEH: I feel like I’m still trying to figure it out and find the balance. I started early off doing group meetings because I thought it might be a little intimidating doing one-on-ones. But what I found out was, the managers are totally comfortable. It doesn’t matter how many people are in there, like the shareholders, you put them in a room and everybody’s going to talk. The associates and seniors, not so much. I even divided them into smaller groups, and it was still crickets. I had a hard time getting them to open up.

TS: I’ve tried to do some group things, and it’s a thud. And I don’t know if it’s because people feel like they’re on a podium every time they talk, or if it’s because the boss is in the room. So, I’ve backed off from doing things like that. I remember trying some happy hour type things when this first started and that was just awful. (Laughter)

Lately I’ve tried to set up some small meetings, and I say, “You can come if you want to this, you just have to bring a glass a wine, and there’s no talking work.” And once everyone’s on the line, I’ve kicked it into breakout rooms and I’m only in one of them, so I’m not causing ‘scary feelings.’ I don’t know. This whole thing, there’s no good answer to it.

And in some respects, trying to host a happy hour get together on Zoom is just one more straw on the camel’s back. Like, “Oh great, after having business calls all day, lets hop on Zoom and have fun with the boss.” (Laughter)

Who do you look to as role models in compassionate leadership?

SEH: Well I can think of when I was at Deloitte, and I worked with Jolene Cox. She was someone I always looked to for how kind and understanding she was.

And I really appreciate how Rob [Wheeler, CEO] handled all of 2020 and how open he has been. I’m not really sure I would’ve done as well as him.

TS: Well, I’ve learned a lot over the years by observing different leaders at different companies. I’ve developed a healthy appreciation for the tone leaders can set. How you talk and how you communicate, it matters.

SEH: Absolutely, tone at the top makes a huge difference.

What advice do you have for the young professionals who want to become leaders some day? How can they start cultivating the necessary attributes now?

TS: I’d say, know what your strengths are and play to them. Don’t try to be like me. Don’t try to be like Sara Elizabeth. Be like who you’re going to be.

If you’re in an organization, and you look around at the leadership table and see there’s nobody there who’s quite like you, that’s a good thing! Because it means there’s a chair waiting there for you if you play your cards right. We don’t need 10 Toms and 10 Sara Elizabeths. We need 20 different people with different experiences and perspectives.

So, know what your strengths are and know where you want to go, and then you don’t need to be anyone but you.

SEH: That’s a really good comment! My thoughts were that it’s always about people and it’s always about communication. It’s about developing personal connections and communicating, so people aren’t in the dark about who you are and what you’re doing. Do what you can to maintain and cultivate good relationships, because if people know you and respect you, they’re going to go a thousand miles to help you succeed.

Thank you both for your time! We’ll end with a fun question: if you weren’t an audit or tax shareholder, what would you be?

TS: Well, my aspiration as a kid was to be the one changing the reader board at the Piggly Wiggly Grocery Store, so we’ll put it that way. (Laughter)

SEH: How am I suppose compete that? I like working with people, so I think I’d be a coach of some kind, maybe help them with their financials or something.

This article is part of the Learning, Adapting, and Growing: Leadership Perspectives series, which explores the role of leadership from a diverse array of perspectives. Each article is written by a Clark Nuber leader who shares their ideas on the unique challenges and opportunities they have experienced, and the lessons they’ve learned along the way.

© Clark Nuber PS and Leadership Perspectives, 2021. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Leadership Perspectives with appropriate and specific direction to the original content.

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Employee Retention Credit: Latest Updates and Extension Through 2021

The rules and guidance for the employee retention credit (ERC) continue to change as we go. The American Rescue Plan Act of 2021, signed on March 11, 2021, now allows an extension of the ERC through the end of 2021. As organizations continue on the path of recovery from the pandemic, this credit can yield sizeable cash flow to those who qualify. In addition to the extension of the credit, the IRS released official guidance on the ERC for 2020 and 2021 (Notice 2021-20 and Notice 2021-23). While much of the additional guidance simply repeats the Frequently Asked Questions posted to the IRS website last year, some new insights are included. Notice 2021-20, issued March 1, 2021, provides guidance specifically for the 2020 employee retention credit. Notice 2021-23, issued April 3, 2021, guides the 2021 credit. Below are key highlights of the additional guidance provided.

IRS Guidance on PPP Loan Interplay

One area employers needed guidance on was the interplay of Paycheck Protection Program (PPP) loans and the ERC. Notice 2021-20 provides some answers to the key questions.

PPP Borrowers Who Have Submitted the Forgiveness Application

Unfortunately, if the PPP borrower received a decision on forgiveness from the SBA, no opportunities are available for changing the allocation of PPP expenses. Many early borrowers submitted their forgiveness applications only using wages as qualified expenses for PPP forgiveness, even if they had non-payroll costs during their covered period. This simplified paperwork for both the borrower and lender. Unfortunately, if the borrower chose this method, it is considered an “election” for the ERC. Those wages reported on the PPP loan forgiveness application, up to the amount of the loan, are not eligible for the ERC. If a PPP borrower reported both payroll and non-payroll costs on the forgiveness application, the Notice indicates non-payroll costs are deducted first from the PPP loan amount, up to the cap of 40%. Wages are applied next. If a borrower's excess wages are not needed for forgiveness, those excess wages can then qualify for the ERC. Example Employer A receives a PPP loan of $100,000. Employer A has $120,000 of payroll costs and $30,000 of qualifying non-payroll costs. If Employer A submitted its PPP forgiveness application reporting both amounts, $50,000 of the wages reported on the PPP forgiveness application may be used for the ERC. This is because Employer A only needed $70,000 of wages to meet full forgiveness ($100,000 proceeds less $30,000 non-payroll costs). Wages reported on the application over the amount needed are then eligible for the ERC. If Employer A only reported $120,000 of payroll costs on their forgiveness application and didn’t mention the $30,000 of qualifying non-payroll costs, only $20,000 of payroll costs would be eligible for the ERC.  For borrowers that submitted their forgiveness application but have not received a forgiveness decision, check with the lender to see if there are any options available. If the lender has not reviewed the application, there may be an opportunity to pull it back and revise the expense allocation. However, if the lender has submitted the application to the SBA for review, options are likely limited.

PPP Borrowers Who Have NOT Submitted the Forgiveness Application

The additional guidance from the IRS creates key planning opportunities for borrowers who have not submitted their PPP forgiveness application yet. Borrowers are highly encouraged to utilize the maximum non-payroll costs on their PPP loan forgiveness application to maximize the employee retention credit. This planning is even more critical for borrowers in 2021 as the ERC is now available on a quarterly basis. Additionally, PPP borrowers should be thoughtful regarding which wages are utilized for the PPP loan forgiveness. While salaries are subject to a cap for highly paid individuals, employee benefits are not. Therefore, it may be beneficial to first allocate employee benefits to PPP loan forgiveness and utilize wages (up to the appropriate cap) afterwards. This will free up more wages for the ERC.

Safe Harbor for a “More Than Nominal” Business Suspension

For employers conducting both essential and non-essential activities, many were left wondering if the suspension of non-essential activities was enough to qualify for the ERC. The original IRS FAQs indicated the suspension of operations needs to be “more than nominal.” However, no definition was provided for that term. Notice 2021-20 provides a 10% safe harbor threshold for determining whether a more than nominal suspension occurred. The safe harbor can be met two ways:
  1. Gross receipts from that portion of the business are at least 10% of total gross receipts during that same quarter in 2019; or
  2. Hours of service performed by employees in that portion of the business are at least 10% of the total hours of service by all employees during that same quarter in 2019.
Example Under a government order, a hospital was required to pause all elective surgeries for patients from April 1, 2020 to June 30, 2020. During 2019 Q2, about 15% of the hospital’s gross receipts were attributable to elective surgeries. Since elective surgeries were at least 10% of the 2019 Q2 gross receipts, this line of business is considered a “more than nominal” activity. Because elective surgeries were suspended during 2020 Q2, the hospital is eligible for the ERC during that quarter.       

Documentation Requirements for Claiming the Credit

An additional component of Notice 2021-20 includes guidance surrounding the records an employer must keep to substantiate the credit. The Notice includes six key areas that must be documented:
  1. How the organization met the eligibility requirements for a full or partial shutdown or significant decline in gross receipts;
  2. How the employer determined qualified wages per employee;
  3. How the employer determined qualified health plan expenses per employee;
  4. Whether the employer is a member of an aggregated group and how the credit has been allocated as a result;
  5. Copies of all Forms 7200 filed with the IRS for an advance refund claim; and
  6. Copies of all Forms 941 filed with the IRS that claim the credit.
These documents should be maintained for at least four years after the date which the tax is due or is paid, whichever is later.

Prior Quarter Gross Receipts Lookback for 2021

The Consolidated Appropriations Act, signed on December 27, 2020, extended the employee retention credit into 2021. With this law, an alternative election exists for employers seeking eligibility under the gross receipts test. Employers with a decline in gross receipts of over 20% in a quarter are eligible for the ERC. Under the alternative election, employers can also claim eligibility for the current quarter by demonstrating gross receipts in the prior quarter, compared to the corresponding quarter in 2019, declined over 20%.  Confusion existed on whether the 2019 lookback quarter was the current quarter in 2021 or the prior quarter. Notice 2021-23 clarifies this. Employers should use the 2019 quarter that corresponds with the 2021 prior quarter. Example Employer A’s gross receipts in 2021 Q1 are $75,000. Its gross receipts in 2019 Q1 are $100,000. The percentage decline is 25%. Therefore, Employer A is eligible for the ERC in 2021 Q1. If gross receipts increase to $95,000 in 2021 Q2 ($100,000 in 2019 Q2), Employer A is no longer eligible when looking at the current quarter. Its decline is only 5%. However, Employer A can look at its prior quarter (2021 Q1) and compare that to 2019 Q1 to demonstrate a decline of over 20%.  Therefore, Employer A remains eligible for the ERC in 2021 Q2. To remain eligible for the ERC in 2021 Q3, Employer A must demonstrate a decline of over 20% in Q3 when compared to 2019 Q3. It cannot use the alternative quarter test for eligibility as the prior quarter had no significant gross receipts decline.

Extension of the Credit Through December 31, 2021

The latest relief bill signed on March 11, 2021 allows for an extension of the employee retention credit through December 31, 2021. This is great news as many industries continue to be hit hard by the pandemic. The eligibility and calculation of the credit in 2021 Q3 and Q4 will remain the same for most organizations. One slight change for Q3 and Q4 only is that the credit will offset the employer’s share of Medicare taxes rather than Social Security taxes. This doesn’t mean that the credit will be smaller. In fact, the opposite may be true. This minor change means that organizations utilizing R&D credits, veteran employment credits, and certain qualified disaster credits no longer need to reduce the employee retention credit for these other credits. The IRS intends to issue another notice to provide specific guidance for the 2021 Q3 and Q4 ERC calculation.

In Conclusion

As organizations get back on their feet this year, careful planning should be done to take advantage of opportunities available to qualify for the employee retention credit. The credit has the potential to yield sizeable refund to organizations. If you have questions on eligibility or the calculation itself, please contact your advisor at Clark Nuber for further assistance. ©2021 Clark Nuber PS. All rights reserved.

Think Before You SPAC

Merging with a special purpose acquisition company (SPAC) is a quick, easy, and low risk way to turn your great work as a company into untold riches. But unfortunately, before we go on, we must focus your attention on the date of our article – April Fools!! Now, some elements of the opening sentence are true. Merging with a SPAC is a­ way to turn your hard work as a company into … something different than what it is today. There is no doubt SPACs are a tool to change the capitalization of a company, and, when done correctly, they can be excellent vehicles for improving an organization. However, when done incorrectly, merging with a SPAC can result in the words “dumpster fire” being used to describe the outcome.

Doing It Right

Yesterday, Paul Munter, Acting Chief Accountant of the Securities and Exchange Commission, issued a public statement outlining several financial reporting and auditing considerations for companies merging with SPACs. In summary, he points out “it is critical that the board of directors, audit committee (as applicable), management, and auditors of these operating companies fully understand and fulfill their respective professional responsibilities so that companies meet their obligations under the federal securities laws and investors are provided with high quality financial reporting at the time of the merger and on an ongoing basis in subsequent periods.” Paul’s statement highlights some of the key considerations:

Market and Timing

Merging with a SPAC can accelerate the time between forming a company and becoming a publicly traded company. In many cases, the company has had little time to develop the robust processes, teams, and technologies necessary to meet the more rigorous and expensive financial reporting, governance, investor relations, and other requirements.

Financial Reporting

The extent, timing, and cadence of quarterly and annual reporting is often much faster and more detailed than is required by a private company. Also, there are significant judgments required in the financial reporting of the merger of the SPAC with the target company. These challenges can be met by a solid team of qualified financial reporting professionals. Assembling such a team in advance of the merger is an important task.

Internal Controls

Section 404(a) of the Sarbanes-Oxley Act requires that management assess its internal controls over financial reporting annually. There are situations that allow this to be excluded, making it critical for the company to understand what rules apply and when. In addition, management must assess its disclosure controls and procedures each quarter. This assessment, while complementary to the requirements of Section 404(a), is distinct from that section and requires additional focus and effort.

Corporate Governance and Audit Committee

The nature of a public company board is much different from that of a private company board. Management has additional responsibilities for interacting with the board. And the board itself is subject to more scrutiny as to its independence, experience, and engagement. Creating or enhancing an audit committee is another key step. Developing clear and effective communication between the committee, management, and auditors is essential for an appropriate tone at the top related to integrity of the financial reporting process.

Auditors

The financial statement auditors are required to be registered with the Public Company Accounting Oversight Board and conduct their audit in compliance with the Board’s standards. These standards are different from those required in a private company audit. Further, the auditor may need to change or augment the audit team to ensure members have appropriate experience auditing public companies.

In Conclusion

While there is no real quick, easy, and low risk way to turn your company into one producing untold riches, SPACs continue to be a popular vehicle for companies to enter the public markets. And, like every other element of forming and growing a company, they take special effort and focus. If you’d like help discussing options for your start-up, please send us an email. ©2021 Clark Nuber PS. All rights reserved.

New Coronavirus Stimulus Package is Serving Up Funds for the Restaurant Industry

4/13/2021: This article has been updated since originally published to reflect new guidance. On March 11, 2021, President Biden signed the American Rescue Plan Act (the Act) into law to speed up the U.S. recovery from the economic and health impacts of the COVID-19 pandemic. Included in the Act is a Restaurant Revitalization Fund with appropriations of $28.6 billion in grants to support the restaurant industry. This is the first grant program specifically available to the restaurant industry. Eligible businesses with gross receipts during 2019 of not more than $500,000 will have $5 billion available to them, with the remaining $23.6 billion to be awarded in an equitable manner to eligible restaurant entities based on annual gross receipts. These grants will be administered by the Small Business Administration (SBA) and will be available until expended.

Who is Eligible for the Grant?

An eligible entity under the Act includes the following:
  • Restaurant;
  • Food stand, food truck, food cart;
  • Caterer;
  • Saloon, inn, tavern, bar, lounge, brewpub;
  • Tasting room, taproom;
  • Licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase product; or
  • A similar establishment where the public assemble for the primary purpose of being served food or drink.

Who is Not Eligible?

  • Entities as of March 13, 2020 who own or operate (together with affiliated businesses) more than 20 locations, regardless of whether those locations do business under the same or multiple names; or
  • Entities that have a pending application for, or have received, a grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act; or
  • Publicly traded entities; or
  • Entities that are state or local government-owned or operated businesses; or
  • Entities that have permanently closed; or
  • Entities that have filed for bankruptcy under Chapter 7 or are liquidating under Chapter 11; or
  • An entity that has filed for bankruptcy under Chapter 11, 12, or 13 but does not have an approved plan for reorganization.
An affiliated business is defined as a business in which an eligible entity has an equity or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business. Eligibility may be limited for the following entities: Inn:
  • Eligibility may be limited to entities that have onsite sales of food and beverage to the public of at least 33% of gross receipts.
  • When applying, entities may need to share evidence of onsite sales.
Brewery, Brewpub, Microbrewery, Taproom, Tasting Room, Bakery, Winery, and Distillery:
  • Eligibility may be limited to entities that have onsite sales to the public of at least 33% of gross receipts.
  • When applying, entities may need to share filed Tax and Trade Bureau reports for the gross receipts reporting period.

How Much is My Business Eligible to Receive Under this Act?

The dollar amount available under this Act is based on the calculation of pandemic-related revenue losses for an eligible entity. Pandemic-related revenue loss is calculated in the following manner: [table id=31 /] In all situations, the pandemic-related revenue loss is reduced by any amounts received and spent under the PPP in 2020 or 2021. The definition of payroll costs is consistent to the definition under the PPP, but it does not include qualified wages taken into account in determining the Employee Retention Credit (ERC).

Is There a Maximum Dollar Amount My Business Can Receive?

The aggregate amount of grants made to an eligible entity and any affiliated business shall not exceed $10 million and shall be limited to $5 million per physical location of the eligible entity.

How Should the Funds Be Used in My Business?

During the covered period, defined as beginning February 15, 2020 and ending December 31, 2021, the funds should be used for the following expenses incurred as a direct result of, or during, the COVID-19 pandemic:
  • Payroll costs
  • Mortgage principal and interest payments (not including prepayments)
  • Rent payments (not including prepayments)
  • Utilities
  • Maintenance expenses to include construction to accommodate outdoor seating, walls, floors, deck surfaces, furniture, fixtures, and equipment
  • Supplies, including protective equipment and cleaning materials
  • Food and beverage expenses within the normal business practice before the covered period
  • Covered supplier costs
  • Operational expenses
  • Paid sick leave
Funds must be returned if an eligible entity fails to use all the grant funds for the allowable purposes on or before the last day of the covered period or if it permanently ceases operations on or before the last day of the covered period (December 31, 2021). The SBA has the option to extend the covered period no later than two years after enactment.

When and How Can I Apply?

Eligible entities will apply for the grants through the SBA website. However, applications are not currently available as the SBA needs time to develop the application and guidance for restaurant and bar owners. Priority will be given to eligible entities that are small business organizations owned and controlled by women, veterans, or socially and disadvantaged small business organizations. These qualifying entities may apply during the initial 21-day period. A good faith certification will be required of applicants certifying that:
  • Uncertainty of current economic conditions makes the grant necessary to support ongoing operations,
  • The entity has not applied for or received a Shuttered Venue Operators Grant (SVOG) under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (generally for performing arts, live venues, theaters, etc.) Read more about the SVOG here.

How Do I Prepare?

As you patiently wait for the SBA to develop the application and guidance, we recommend that you prepare to apply. To apply and receive the grant payments, you will need to complete an application form and the IRS Form 4506-T (Request for Transcript of Tax Return), as well as provide gross receipts documentation. Documentation to show gross receipts and, if applicable, eligible expenses, include:
  • Business tax returns (IRS Form 1120 or IRS 1120-S)
  • IRS Forms 1040 Schedule C; IRS Forms 1040 Schedule F
  • For a partnership; partnership’s IRS Form 1065 (including K-1s)
  • Bank statements
  • Externally or internally prepared financial statements such as income statements or profit and loss statements
  • Point of sale reports, including IRS Form 1099-K

Will These Grants be Taxable?

The grants are not taxable income for federal income tax purposes, but the business will be able to deduct the expenses paid with the grant funds from their gross income. The Restaurant Revitalization Fund is a great opportunity for restaurants and bars who have been hit hard during the COVID pandemic. Having these funds available to restaurant and bar owners as the State moves into phase three is important for their future success. If you have questions about the program, please contact a Clark Nuber advisor. ©2021 Clark Nuber PS. All rights reserved.

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