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#togetherwestand COVID-19 Resource Center On your road to recovery, lean on Sax for up-to-date information relevant to your state and business.

Now is the time to prepare for the road to recovery. With changes constant and released guidance on-going, lean on Sax to stay in the know with the most recent updates so you can best position your business to regain strength.

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SAX FOCUS ON RECOVERY NEWSLETTER

IN THIS ISSUE

CONSTRUCTION CORNER

MANUFACTURING & DISTRIBUTION CORNER

WEALTH MANAGEMENT CORNER

Presenting the Paycheck Protection Program Loan in Your Year-End Financials Written by: Bill Happe, CPA

Sales Tax Concerns Related to Software as a Service in a Post-Wayfair Ruling Landscape Written by: Kevin Sohr, MBA, MST

Income Planning and IRMAA in Retirement

REAL ESTATE CORNER

TECHNOLOGY CORNER

TRANSACTION CORNER

Estate Planning Opportunities for Real Estate Owners, Operators & Developers Written by: Helena M. Lynch, CPA, MST

Business Agility Enabled by Technology

SBA Issues Procedural Guidance For PPP Borrowers Considering a Change in Control Written by: Stephen J. Ehrenberg, CPA, MBT

NOT-FOR-PROFIT CORNER

VFL CORNER

Navigating the Uncertainties Surrounding Relief Programs for Non-Profits Written by: Al Traverso, CPA

Important Considerations for Business Valuations Amidst the COVID-19 Pandemic Written by: Megan Sartor, CPA, ABV, CFF

20 TAX CORNER

Residency Considerations in the Age of COVID-19 Written by: Kevin Sohr, MBA, MST

Overview of Phase 3 of the Provider Relief Fund for Healthcare Providers Written by: Deborah Nappi, CPA, MST

HEALTHCARE CORNER

The information contained within this newsletter is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax or financial advice from a professional.

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CONSTRUCTION CORNER

Presenting the Paycheck Protection Program Loan in Your Year-End Financials

Written by:

Bill Happe, CPA Partner whappe@saxllp.com

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PPP AT YEAR-END A

t the start of 2020, no one could have expected what was ahead. The effects of the global pandemic have touched everyone, and significantly impacted businesses. In order to best navigate through all the uncertainty, many business owners applied for assistance under the Paycheck Protection Program (PPP) and received funds with the hope and expectation that they will be forgiven by the government. As we continue to wait and see what the forgiveness process will ultimately look like, business owners continue to operate their businesses the best they can, and an important part of that includes preparing both internal and external financial statements. As advisors to our clients, time and time again we are asked the questions: “How do we report the money we received from the PPP?” and “Is this a loan or is this a government grant?”

government assistance will be met and satisfied. If assurance exists that the Company will meet the criteria, they are able to recognize earnings over a period in which the corresponding expenses have been incurred. Prior to all expenses being incurred, the proceeds would be reported as deferred income and released over time as the qualifying expenses are incurred. The income would be reported in the other income section of the income statement or netted against the corresponding expenses for which the proceeds were utilized.

With that, we would like to outline our suggested best way forward with presenting the PPP loan on your year-end financial statements based on what we know at this time.

Here is a quick recap of the SBA guidance provided so far:

Currently, U.S. Generally Accepted Accounting Principles (GAAP) does not have guidance surrounding the proper accounting treatment of a forgivable loan received by a for-profit business from a government entity. However, the AICPA has issued guidance surrounding the acceptable treatments of such a loan as a result of the large amount of businesses who received loan proceeds under the PPP and are now required to report this on interim or year-end financial statements. The AICPA’s guidance allows for a for-profit entity to treat the loan proceeds received under the PPP in one of two ways. Option 1: Account for the loan as a financial liability in accordance with FASB ASC 470, Debt. The Company may choose to record the proceeds from the PPP as a loan on the balance sheet in accordance with ASC 470 if they are uncertain whether the full loan or a portion of the loan will be forgiven. If the Company is to record the PPP under the ASC 470, the guidance issued by the AICPA indicates that the following should occur when recording and presenting the debt: • Record the cash proceeds received from the PPP loan as a financial liability and accrue interest on the outstanding debt in accordance with ASC 835-30. • Do not impute interest on these loans even though the interest rate is below market based on ASC 835-30-15-3(e) which excludes loans from a government agency from such consideration. • The PPP proceeds would remain as a liability until the loan is either partially or completely forgiven or the Company makes payments toward the principal and accrued interest on the loan. • Once the loan is partially or completely forgiven, the Company would record a gain on extinguishment of debt once they have been legally released from the debt liability. Option 2: Account for the loan proceeds under International Accounting Standards (IAS) 20. As mentioned, U.S. GAAP does not currently provide guidance for a for-profit business entity surrounding forgivable loans, therefore the AICPA guidance indicated it was allowable and appropriate to follow IAS 20 to account for the PPP loan. According to the AICPA, if the Company expects to meet all the eligibility requirements of the PPP and receive forgiveness, they are able to recognize the proceeds as a government grant by analogy to IAS 20. The Company would not be able to recognize the grant under IAS 20 until there is reasonable assurance that all of the conditions attached to the

When considering which option is best for your business, you should consider your unique facts and circumstances and consult with your advisors. Also consider the guidance the Small Business Administration (SBA) has provided to date regarding your loan size.

The SBA has announced that all loans over $2 million will be subject to review by the Department of Treasury. At this point, the details surrounding the review timing or requirements are not known. When the SBA announced that the Department of Treasury would be reviewing loans in excess of $2 million it was to determine if the loans should have been issued to the Company based on the good faith certification made at the time the Company applied, as well as to review the associated expenses the funds were utilized for. As a result of the clarifications needed surrounding the reviews of loans in excess of $2 million, it makes it harder to determine if the entity will receive forgiveness on all or some of the loan, therefore making reasonable assurance harder to obtain. Accounting for the loan as debt would be the conservative approach in this circumstance. At this time, in addition to the Department of Treasury’s review requirements for loans in excess of $2 million, all companies that have received proceeds from the PPP will be required to submit documentation to their lending institution for review by both the lending institution and the SBA. This process will determine who will receive forgiveness under the program. This process is still being updated and, as with most things in 2020, it remains uncertain. While a company may believe they followed all the guidelines set forth by the SBA, it will ultimately be up to the SBA to determine this. While the SBA has announced that all loans in excess of $2 million will be subject to review, the SBA retains the right to review any loan regardless of size. It is important to consider the appropriate treatment for your company and the effect the recording of the proceeds from the PPP loan can have on your financial covenants with your bank. Therefore, conversations should be had with your bank as soon as possible to proactively address it prior to year-end. An open dialogue with your accountants, banks and other stakeholders is always important, but especially critical in these challenging and uncertain times. For more information on how to present the PPP loan in your year-end financials, reach out to your Sax advisor or email covid19@saxllp.com.  Bill Happe, CPA is a Partner at Sax and primarily focuses on the Construction and Manufacturing & Distribution industries, specializing in industry-specific review, audit and compilation services. Bill also assists with Employee Benefit Plan Audits and oversees audit and compliance procedures for many of the firm’s largest engagements. He can be reached at whappe@saxllp.com.

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M&D CORNER

Written by:

Sales Tax Concerns Related to Software as a Service in a Post-Wayfair Ruling Landscape

Kevin Sohr, MBA, MST State and Local Tax Specialist ksohr@saxllp.com

C hanges to the economy and sales tax laws and regulations in the past decade have created a dynamic environment for businesses in the Software as a Service (SaaS) industry. For one, SaaS has become ubiquitous in our lives in a way that wasn’t contemplated in years past. Further, the state taxman’s reach has extended to out-of-state vendors in new ways. Further still, old taxing statutes defining taxable goods and services did not contemplate today’s SaaS providers; creative tax authorities will attempt with mixed success to frame today’s SaaS offerings in a way that comports with yesterday’s laws and regulations. SaaS typically refers to a software application used over the internet. The vendor controls the software and the program; there

is no license to the customer. The vendor updates its offerings without notice or preapproval from its customer. The customer accesses the program through a cloud service. The customer does not control or manipulate the software, but the customer relies on the program to deliver critical business information. This offering is similar to software packages of the past, but different in important ways which may lead to different or less certain taxability determinations. Importantly, it is the mixture of these three factors – SaaS’s growth, the states’ extended jurisdictions, and an offering poorly anticipated by yesterday’s tax authorities – that creates a volatile environment for today’s SaaS vendors, and to a lesser extent, their customers. Sax Focus • www.saxllp.com Page 6

POST-WAYFAIR RULING LANDSCAPE The changed nexus landscape. When considering the sales taxes related to a business’s operations, there are two questions that need to be answered and it makes sense to ask them in the proper order. First, does the business have nexus – or a taxable presence – in the jurisdiction? Second, if the business does have nexus in the jurisdiction, is the transaction subject to sales tax? If the taxpayer doesn’t have nexus, it is not necessary to conclude on the taxability of the transaction. The approach to that first question, (does the business have nexus?) has been transformed in the past three years. In 2017, a sales tax nexus review focused on two main criteria: people and property. If the business had employees or property in the state, it had nexus. If it did not have a physical presence, it did not have nexus. This physical presence criteria had been established by the Supreme Court in the Quill case of 1992, which was consistent with prior cases. However, the nexus review of 2017 would be irrelevant in 2020, thanks to the Supreme Court’s ruling in the South Dakota v. Wayfair case of 2018. That case has transformed the landscape of all sales tax considerations but may be felt most acutely by SaaS providers. South Dakota had passed a law asserting nexus over an out-of-state taxpayer with no physical presence if it had sufficient sales ($100,000 or 200 transactions) into the state. Observing the changing nature of the U.S. economy and the billions of uncollected sales tax dollars, the Supreme Court overruled its earlier physical presence standard. Taxpayers no longer need a physical presence to create a taxable presence in a state. In the ensuing years, all states with sales and use taxes have adapted to the more relaxed nexus standard. Most have adapted thresholds similar (or identical) to those in South Dakota’s $100,000/200 transaction model. Today, a business with a widespread customer base could have nexus in every jurisdiction, regardless of the size of its physical footprint. Let’s consider the application of this rule to a hypothetical SaaS provider: SAAS Inc. provides an offering to bricks-and-mortar retailers to track customers’ buying habits. SAAS Inc. operates exclusively from its Delaware headquarters. SaaS Inc. has several clients, including the omnipresent Box Store Inc. In 2017, prior to the Wayfair decision, SAAS Inc. had no sales tax filing responsibilities. (Delaware does not have a sales tax.) In 2020, without changing any facts and thanks to Box Store Inc.’s extensive footprint, SAAS Inc. has nexus everywhere. In 2017, SAAS Inc. was unconcerned with the taxability of its offering; in 2020, failure to address its sales tax posture could drive it out of business. Taxability of SaaS In most states, sales and use taxes are a complementary tax scheme. A vendor (with nexus) is responsible to collect sales tax on its sales. The purchaser is responsible to report use tax on its purchases when the seller does not charge a sales tax. The second part of that complementary system is what inspired the Wayfair case; purchasers are terrible at self-reporting the use tax on their purchases. It is much more efficient for a state tax auditor to find an assessment from a vendor, like Wayfair, than from its purchasers – the thousands of people buying home furnishings over the internet. Similarly, if SaaS is taxable, it will be much more efficient for states to seek that tax from the several vendors than from their thousands of customers. With the expansion of nexus standards in the wake

of Wayfair, it then becomes important to determine if SaaS is taxable in the states. However, sales tax laws were written at a time when the economy was based on sales of widgets and the performance of personal services. In general, sales of tangible personal property (widgets) are subject to tax unless specifically exempted; sales of services are not subject to tax, unless those services are specifically enumerated in the taxing statutes or regulations. Sales of SaaS? That’s less certain. Before the prevalence of SaaS, the taxation of simple software was a question of uncertainty. Was software tangible personal property? Some states argued the mere floppy disc was a tangible personal property (taxable), even though the true value of the software rested in the license to the intangible. Those states might then concede taxes were not due when the very same software was downloaded over the internet. Is custom software taxable? Some states treat custom software as a nontaxable service and canned software as a taxable sale of property. What amount of customization is necessary to transform a generic software package into a nontaxable custom package? It depends. Yes, before the prevalence of SaaS, even the taxation of simple software packages required a state-by-state analysis with nuanced considerations. The state has one chance to argue that SaaS is a taxable transmission of software, but it also has a second chance to argue Software as a Service entails the provision of an enumerated taxable service. For example, data processing services may be taxable. Information services may be taxable. Credit reporting services may be taxable. The elements which favor distinguishing SaaS from taxable software may also be the same elements which describe SaaS as a taxable service offering. Let’s reconsider our earlier example of SAAS Inc. In 2017, SAAS Inc. was comfortable in its assessment that it did not have a nexus in any state. For that reason, SAAS, Inc. was unconcerned with the taxability of its offerings; its clients could determine the taxability, pay the tax or live with the exposure. However, in 2020, SAAS, Inc. has nexus everywhere. If its offering is subject to tax and they fail to collect and remit to the appropriate states, they are living with an exposure that could jeopardize their future. Imagine a typical sales tax rate of 7% where the vendor failed to collect taxes due, and years of exposure going back to 2018 when the Wayfair case was decided. Further consider potential interest and penalty assessments. Can SAAS Inc. absorb a series of assessments for non-collection? For these reasons, it is important for SaaS vendors to review anew their nexus positions and their taxability determinations. The sales tax review which predated Wayfair’s expanded nexus reach or predated their products’ sales growth is capable of leaving the SaaS provider vulnerable to non-collection exposures that it may not be able to settle. If you need assistance determining whether your SaaS offerings follow today’s new tax laws and regulations, reach out to a Sax advisor as we understand the intricacies and complexities of the changing nexus landscape.  Kevin Sohr, MBA, MST is a State and Local Tax Specialist at Sax with more than 20 years of experience in state taxes. He advises clients on all matters, including income/franchise taxes, sales/use taxes, property tax, unincorporated business tax and various specialty taxes. He can be reached at ksohr@saxllp.com.

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WEALTH MANAGEMENT CORNER

Income Planning and IRMAA in Retirement

Medicare is an area that practically every American will encounter when planning for retirement. It sits at the intersection of health and wealth in your financial life plan, and so often surfaces across a range of long-term planning conversations. Plus, Medicare and its associated costs can be a confusing topic, given the program’s various parts, costs and benefits. With approximately 10,000 Americans becoming eligible for Medicare every day, navigating these decisions in a cost-effective manner can be a daunting task without some guidance. Medicare Coverage Options: The Basics Simply put, Medicare generally has two main enrollment options, which include five main components. Everyone signs up for Parts A and B, and then, to help cover what Parts A and B do not, you have a choice between a Medicare Supplement Plan (also called a Medigap Plan) and Part D on one hand or a Medicare Advantage Plan on the other. The following diagram illustrates how these two enrollment options fit together.

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INCOME PLANNING & IRMAA IN RETIREMENT Medigap Plans (the first route you could take) are typically more expensive than a Medicare Advantage Plan (typically your second option) but provides more overall coverage. While Medigap Plans are offered by private insurance companies, plan benefits are regulated by Medicare regardless of what company you buy coverage from. The only variable is the premium that each company charges. Your Medigap Plan will be accepted anywhere that original Medicare is accepted, which can offer welcome peace of mind. What’s more, you aren’t restricted to specific doctors and generally do not need a referral to see a specialist. While the plan premiums may cost more, you know you will almost certainly have coverage should any medical issue arise in the future and additional out-of-pocket costs will be limited. Medicare Advantage Plans (that is, Part C) have been gaining attention because they are marketed as a no- or low-cost option that wraps everything into one plan. Think of these plans as a Medicare HMO. While many of these plans do provide additional benefits, such as dental or vision, you should keep a few things in mind. Medicare Advantage Plans usually work within a network of preferred doctors and hospitals, require referrals to see a specialist, and they are not always accepted by all healthcare providers. Also, if you travel, even within the U.S., there is a big chance your plan will not be accepted in other states, possibly resulting in higher out-of-pocket costs if you need medical care away from home. Lastly, these plans can change yearly, so you’ll need to review them annually to ensure the plan you have is still a good fit for your needs. The Cost Part of Your Equation Besides considering what coverage to apply for, it’s important to be aware of the potential costs associated with Medicare. While most people pay the standard monthly Part B premium of $144.60 and their Part D premium for medical and prescription drug coverage, if your income is above a certain limit, extra surcharges will likely apply. Due to the Bipartisan Budget Act of 2018, if you are considered a high earner or you are an individual with modified adjusted gross income (MAGI) greater than $87,000 or a married couple filing jointly with MAGI greater than $174,000, you will have additional charges that apply to your Part B and Part D premiums. Medicare refers to these surcharges as income-related monthly adjustment amounts (IRMAAs). The premiums for 2020 vary from an additional $57.80 to $347 for Part B and $12.20 to $76.40 for Part D.

Medicare uses your income from your tax return from two years ago to determine your premiums for the current year. This means your 2021 premiums will be based on your 2019 MAGI. This information is shared annually between the Social Security Administration and the IRS, so there is no way to avoid these reviews. The next time you find yourself in an income tax planning conversation, keep this two-year look-back in mind. If you have future income coming in a lump sum, such as from selling a business or cashing out on restricted stock, you may want to consider taking those payouts more than two years prior to signing up for Medicare, if possible, to avoid paying these surcharges. The good news for people who are in this situation and have received one-time, lumpsum income is that they will only pay a higher amount for one year, as new premiums are calculated annually. Once you’ve signed up for Medicare, you should receive a notice letter from the Social Security Administration toward the end of each year with your premium amounts for the next year. There are specific instances in which you can file an appeal to have your IRMAA adjusted, but generally these are limited to certain major life events, such as you recently stopped working, marriage, divorce, or death of a spouse. When planning for what your retirement might look like, keep these IRMAA adjustments in mind and consider strategies that may help you avoid paying these additional surcharges. Going just $1 into the next tier means paying that larger surcharge for an entire year. Viewing IRMAA in the context of your financial picture as a whole and in conjunction with various income planning and tax strategies – from making qualified charitable distributions and funding a health savings account to the timing around when to realize capital gains/losses and take Social Security benefits – could play a part in potentially reducing your health-care expenses in retirement.  Readers interested in learning about the Top 5 Medicare Mistakes to Avoid, can watch a recording of a webinar presentation given jointly by Sax Wealth Advisors, LLC and Senior Advisors. About the Author Sax Wealth Advisors, LLC is a wholly owned subsidiary of Sax LLP and an independent registered investment advisor offering strategic long-term financial and estate planning built on trust, integrity and meaningful client relationships. To learn more, visit saxwa.com.

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REAL ESTATE CORNER

Selecting & Implementing the Right Software for Estate Planning Opportunities for Real Estate Owners, Your Construction Business Operators & Developers

COVID-19 has had a devastating effect on the economy, financial markets and real estate values. Not only have real estate values decreased but liquidity issues are being caused by lower rental and occupancy rates, as well as tenants being unable to pay the rent. Since the fair market value of real estate has decreased, this provides property owners with a strategy for reducing potential estate taxes by gifting a membership interest from the real estate owner to their children or a family member during their lifetime. By gifting membership interests, this allows business valuators to utilize multiple discounts to reduce the value of the business. The lifetime exemption ($11.58 million for 2020) is the amount that

can either be gifted during a person’s lifetime or excluded from their taxable estate upon death. Lower fair market values create a unique planning opportunity by allowing property owners to transfer a greater portion of their assets to reduce their taxable estate. The recent decline in market values provides an opportunity to gift at lower values, potentially allowing you to gift assets using your lifetime exemption that would have otherwise resulted in a taxable event before the decline. In 2026, the current available exemption is scheduled to decrease to $5 million, adjusted for inflation from 2010. This is further exasperated by the uncertainty of the upcoming presidential election. Under Biden’s plan, the lifetime exemption would be

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ESTATE PLANNING OPPORTUNITIES

Written by:

Helena M. Lynch, CPA, MST Senior Tax Manager hlynch@saxllp.com

decreased to $3.5 million and the step-up in basis for inherited assets would be eliminated. Under Trump’s plan, he would make the current law permanent. The impact of any law change due to the election would not take effect until 2021.

general partners and can control the timing of distributions to the limited partners. Generally, the more stringent the restrictions, the larger the valuation discount available. The gift can be outright or can be made in trust.

Partnerships are often used to transfer property from older generation family members to younger generation family members. Property is contributed to a limited partnership, followed by a gift or gifts of limited partnership interests to the younger family members. By using a partnership with transfer restrictions in the partnership agreement, the donor can obtain valuation discounts (such as lack of marketability) on the property gifted. Additionally, the older generation family members may serve as

When gifting partnership interest to the next generation, care should be given not to transfer any partnership interest with a negative capital account. This would create an unintended income tax consequence. When deciding to gift an interest in real estate, careful consideration should be given to ensure that you are transferring value that will appreciate in the future.

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Example: Partnership A is owned 80% by Mother and 20% by Daughter. The Partnership owns a commercial property which in April 2019 was worth $10,000,000 and provided $1,000,000 of income annually. By April 2020, the property was worth $9,000,000. Mother would like to gift Daughter a 29% minority interest of the partnership resulting in 51% / 49% ownership.

When transferring real estate, multiple valuation discounts may be utilized including a marketability discount and a minority interest discount. In this case, we will use an effective valuation discount rate of 30%.

$9,000,000

Partnership value as of April 2020 Value of a 29% non-voting membership interest

2,610,000

Effective discount rate @ 30%

(783,000)

Taxable Gift

$1,827,000

Result: This taxable gift removed $2,610,000 from the Mother’s estate while only using $1,827,000 of her lifetime exclusion.

Other Gift/Estate Tax Issues: To reduce or eliminate estate taxes, that taxpayer may use portability. Portability is the ability for the surviving spouse to use the deceased spouse’s unused estate and gift tax exclusion after the deceased spouse’s death Portability can potentially eliminate the tax on combined estates of $23.16 million or less when the spouses have not equalized their estates. The deceased spousal unused exclusion (DSUE) amount is available for use by the surviving spouse as an addition to the surviving spouse's basic exclusion amount if an election is made by the executor of the first-to-die spouse's estate to transfer the DSUE amount to the surviving spouse. Trusts If an individual does not want to directly gift the interest to their heirs, another option to use is a trust. Trusts provide many benefits including: •Asset protection for his/her heirs. •Asset protection in case of future litigation or bankruptcy.

Intra-Family Loans Historically, low interest rates mean there is a great opportunity to do intra-family loans. The loan can be used to invest in real estate or the stock market or to purchase a share of the family business at a lower value. Interest on the loan is charged at the short-term Federal APR if the loan term is 3 years or less. The Federal APR for September 2020 is 0.14%. The children can invest the loan funds back into the family business or an outside investment. The loan can potentially be forgiven. People with existing intra-family loans should explore the potential refinancing of the loan at a lower interest rate. With all the tax saving opportunities currently available, and given the timing of events, please contact a Sax advisor to avail yourself of these opportunities. Helena M. Lynch, CPA, MST is a Senior Tax Manager at Sax with over 20 years of experience providing tax compliance, tax savings opportunities and transaction support to businesses. Helena is actively involved in the firm’s Real Estate Practice and her expertise includes strategic tax planning, mergers and acquisitions and complex tax allocations. She can be reached at hlynch@saxllp.com.

•Possible avoidance of future income and/or estate taxes.

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TECHNOLOGY CORNER

Business Agility Enabled by Technology

ompanies are looking to operate more efficiently in these unprecedented times and technological excellence can be a key component to business agility. Regardless of the passing of time, the old adage remains true: "Time is Money." How a technology ecosystem works, how efficiently it operates, and how an IT team utilizes time are three categories to consider when assessing how best to optimize resources and the true agility of a business. No matter the size of your business, your technology infrastructure affects your company’s culture and relationships, while enhancing security, generating revenue and delivering results for clients and customers. A more cohesive, agile and flexible technology ecosystem will be able to handle an organization's needs with an adept fluidity on a daily basis. When designing a plan for such an improvement, consider these three key goals:

staff member to be a subject matter expert in all technologies, a technology advisor can provide the crucial framework for building the capacity for securing intellectual property. S2 Solutions is pleased to offer our Advisory Services, spanning 18 areas of expertise, to companies seeking to increase efficiency, productivity, and security. We are a committed strategic technology advisor and partner for companies looking to position their companies for impressive growth. Should you have any issues or questions with regards to your technology needs, please do not hesitate to reach out to Sax’s technology arm by visiting s2solutions.tech. 

• Reduce costs • Reduce fragmentation • Increase time efficiency When designing such a plan, a company should lean on an advisor equipped with technology expertise and an in-depth understanding of the unique needs of your company. Making structural changes and investments can come with a multitude of questions with regards to purchasing, timing, and implementation and it’s important to have an advisor in your corner who can arm you with a road map to get you where you need to go. The right advisor can also help you to free up and prioritize your IT team's time so they can go from supporting users and/or technology in a reactive manner to being able to prioritize time for a proactive focus on strategic initiatives. While it is nearly impossible for a single

Who is S2 Technology Solutions? S2 Technology Solutions is the result of a joint venture between Sax LLP, a Top 100 accounting, tax and advisory firm, and Safari Solutions, a long-standing strategic technology partner with the combined mission to protect businesses while enhancing technology capabilities and increasing productivity. S2 Technology Solutions provides critical technology services such as cloud migrations and operations, disaster recovery, managed services, business continuity, cybersecurity, enterprise architecture, technology strategy development and project and vendor management. Learn more here. Sax Focus • www.saxllp.com Page 13

TRANSACTION ADVISORY CORNER

SBA Issues Procedural Guidance For PPP Borrowers Considering a Change In Control

Written by:

Stephen J. Ehrenberg, CPA, MBT Partner sehrenberg@saxllp.com

2 020, to say the least, has been a tumultuous year. Irrespective of size and location, businesses across all industries have been impacted by the COVID-19 pandemic. However, as eloquently stated by the infamous showman P.T. Barnum, “The show must go on.” Now more than ever, business owners have been forced to dig deep and flex their collective resiliency muscles to forge a pathway towards economic recovery. To assist business owners in this process, the U.S. government released the CARES Act in March 2020. As we are all well aware, one of the most beneficial (and controversial) areas of the CARES Act has been the Paycheck Protection Program (PPP). At its core, the PPP provided forgivable loans backed by the Small Business Administration (SBA) to qualifying small businesses, provided the funds were spent appropriately within a finite period (i.e., the Covered Period). Rife with issues and unanswered questions, many of which

are beyond the scope of this article, the PPP has provided a lifeline to struggling businesses seeking to stem the coronavirus tide. The area that will be covered in this article surrounds the impact of the PPP loans on merger & acquisition (M&A) transactions, as buyers and sellers alike have grappled with structuring concerns when PPP loans are in place. In response to these growing concerns, the SBA released Procedural Guidance, effective October 2, 2020, for instances where a change in control has occurred for borrowers who received PPP loans. This guidance details the steps that lenders and borrowers, in coordination with the SBA, must take prior to the consummation of an M&A transaction. Prior to the closing of any such transaction, the borrower must provide the lender with written notification, including copies of the proposed agreements and/or other documents that would effectuate the proposed transaction.

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SBA PROCEDURAL GUIDANCE For purposes of this procedural guidance, a change in control is deemed to have occurred under any of the following circumstances: 1. At least 20% of the common stock or other ownership interest of a borrower is sold or transferred in one transaction, or a series of transactions; or 2. The borrower sells or otherwise transfers at least 50% of the fair market value (FMV) of its assets; or 3. The borrower is merged into another entity. The procedural guidance provides specific procedures for lenders depending upon the type of ownership change contemplated by the PPP borrower. The PPP Note is Fully Satisfied If the PPP note is paid-off or if the loan forgiveness process has been completed prior to the closing of the transaction, there are no lender and/or SBA restrictions on the transaction. In cases where loan forgiveness is sought, note that the SBA must have remitted the forgiven funds to the lender in order for the loan forgiveness process to be considered complete (i.e., simply having applied for loan forgiveness does not satisfy this condition). The PPP Note is Not Fully Satisfied If the PPP note is not fully satisfied, however, the structure of the transaction must be analyzed to determine if the lender can unilaterally approve the transaction. The following transactions may be approved by the lender without SBA pre-approval: • 50% or Less Threshold: Sale or other transfer of 50% or less of the common stock or other ownership interest of the borrower. • Greater than 50% Threshold: (1) Sale or other transfer of greater than 50% of the common stock or other ownership interest of the borrower, or (2) Sale of 50% or more of the borrower’s assets; and Î Together with the required substantiation documentation, the borrower submits a PPP loan forgiveness application and funds an interest-bearing escrow account controlled by the lender equal to the outstanding balance of the PPP loan. The escrow funds, once the loan forgiveness process is completed, are first used to repay any principal and accrued interest on the PPP loan. Î In the case of an asset sale meeting this criterion, the Lender has 5 business days to notify the appropriate SBA Loan Servicing Center of the amount and location of the escrow funds. Transactions that do not meet the above criteria require SBA preapproval prior to the consummation and may not be unilaterally approved by the lender. In circumstances such as these, the lender must submit a request to the applicable SBA Loan Servicing Center that includes1: • The reason that the PPP borrower cannot fully satisfy the PPP Note; • Details of the requested transaction; • A copy of the executed PPP Note; • Any letter of intent and the purchase or sale agreement setting forth the responsibilities of the borrower, seller (if different from the borrower), and buyer; 1

• Disclosure of whether the buyer has an existing PPP loan and, if so, the SBA loan number; and • A list of all owners of 20% or more of the buyer. The SBA will render its decision within 60 days of the receipt of the request. Additional Restrictions and Conditions Impacted parties considering the sale of greater than 50% of the FMV of their assets should note that in the case of transactions requiring SBA pre-approval, the buyer will be required to assume all of the seller’s PPP obligations. Purchase and sale agreements must include the appropriate language, but borrowers may also submit a separate agreement to the SBA reflecting said language. Impacted parties contemplating stock transactions or mergers, irrespective of whether SBA pre-approval is required, should note that the PPP borrower (and, in the event of the merger of the borrower into another entity, the successor to the PPP borrower) remains subject to all obligations under the PPP loan. The SBA will have recourse against the former owners in situations where the new owners use the PPP funds for unauthorized purposes. Lastly, within 5 business days of the close of the stock/other ownership interest or merger transaction, the lender must notify the appropriate SBA Loan Servicing Center of the: • Identity of the new owners of the common stock or other ownership interest; • New owner’s ownership percentage; • Tax identification number for any owner holding 20% or more of the equity; and • The location of, and the amount of funds in the escrow account. Additional conditions also apply in situations below where the new owners or the successor entity has an existing PPP loan: • Stock/Other Ownership Interest Transactions: The borrower and the new owner are responsible for: Î Segregating and delineating PPP funds and expenses; and Î Providing documentation to demonstrate compliance with the PPP requirements on a per-borrower basis. • Mergers: The successor is responsible for segregating and delineating PPP funds and expenses and providing documentation to demonstrate compliance with respect to both PPP loans. Two Worlds Collide As the M&A and PPP worlds converge, Sax’s Transaction Advisory Services team is here to help. Thorough planning on both the transaction side and the PPP loan forgiveness side are now more relevant and more pressing than ever. Cash flow and timing, as well as a letter of intent and agreement considerations, will play an integral role in a successful transaction. Contact Sax’s team of professional advisory, tax and accounting professionals for additional details.  Stephen J. Ehrenberg is a Partner at Sax and a member of the firm’s Transaction Advisory Services Group and COVID-19 Recovery Task Force. Stephen primarily focuses on the Manufacturing & Distribution and Construction industries. He can be reached at sehrenberg@saxllp.com.

The SBA may require additional risk mitigation measures beyond those listed here as a condition of transaction approval.

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NOT-FOR-PROFIT CORNER

Navigating the Uncertainties Surrounding Relief Programs for Non-Profits

Written by:

Al Traverso, CPA Partner atraverso@saxllp.com

he passage of the CARES Act and the creation of the Paycheck Protection Program (PPP) created opportunities for non-profit organizations to access financial resources at a time when uncertainty was in abundance. Unfortunately, even after receiving PPP loan funding, uncertainty still remains in many areas of the nonprofit community including the program’s forgiveness criteria and how non-profits will be able to maximize the amount of their loan that will (hopefully) be forgiven. Unfortunately, with state budgets under pressure and no meaningful legislation coming from Congress to assist with budget deficits, it is reasonable to expect that state agencies will try to recapture as much as they can of a non-profit’s PPP loan funding. A non-profit that is funded primarily through cost reimbursement contracts (grants) has a particularly difficult situation. Non-profits funded under this type of grant cannot “double-dip” and claim reimbursement for the same expense twice. Based on current guidance available, and there is not much, it is unlikely that a nonprofit would be able to retain both the grant funding and the PPP loan. There is also the question of which source of funds, Grant or PPP, was used to fund qualifying expenses and which source does the non-profit repay. Non-profits should remember that until forgiveness is granted, the PPP funding is still in essence a loan,

and for those non-profits with a June 30, 2020 year end, the PPP funding remains a loan, subject to the repayment terms of the loan agreement. This would make it unlikely that state agencies would be able to claim a double-dip on expenditures for the June 30, 2020 grant period. Non-profits can and should take advantage of the extended 24week covered period for qualifying expenditures under the PPP loan program. There is no reason to rush forgiveness and use the original 8-week period to calculate forgiveness. Unless full-time equivalents (FTEs) are expected to negatively impact the forgiveness calculation at the end of the 24-week period, having the additional time to not only accumulate more qualifying expenditures but also wait for further guidance can only benefit a non-profit. Another possible way to maximize forgiveness could be to request a budget modification with granting agencies to reallocate contract dollars from line items that could be paid for using PPP loan funds (I.e.: payroll and related costs, rent and utilities) to other line items like expenditures incurred as part of a non-profit’s COVID-19 mitigation plan. For non-profits that have contract years that end June 30, 2020, it may no longer be possible to get budget modifications for grant periods which have already ended. However, the extension of

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NAVIGATING UNCERTAINTIES

the PPP‘s covered period from eight weeks to 24 weeks does provide the opportunity for a non-profit to request a budget modification for the current year’s contract and take advantage of the PPP extended covered period for eligible expenditures.

sure that it has the ability to demonstrate to funding sources that the costs for which it sought forgiveness under the PPP loan did not include those same expenses on expenditure reports for its cost reimbursement contracts.

Some non-profits will find themselves in a better position when it comes to the PPP loan. Non-profits that generate their funding under fee-for-service contracts or through contributions have the greatest potential to maximize their PPP loan forgiveness. A nonprofit that seeks forgiveness for expenditures that are not part of a cost reimbursement contract, and are otherwise funded by fee for service or contribution revenue, would not constitute a “double dip”.

It will be of utmost importance that a non-profit be able to clearly demonstrate to its funding sources that it did not claim reimbursement and forgiveness for the same expense. For a non-profit whose overall operating budget is bifurcated between cost reimbursement grants and fee for service or contribution revenues stands a very good chance of maximizing it’s PPP loan forgiveness, especially with the extended covered period being raised to 24 weeks.

Non-profits that have a combination of both cost reimbursement grants and fee-for-service revenues have the potential to take advantage of the PPP loan forgiveness without triggering a doubledip on expenses. However, non-profits need to take great care in how they track and categorize expenditures for purposes of PPP loan forgiveness and their cost reimbursement contracts. Nonprofits are already adept at separating and tracking expenditures by funding source. This is something that non-profits are well-versed in and deal with on a constant basis. A non-profit just needs to make

For further guidance and assistance regarding the PPP loan and your non-profit organization, please reach out to your Sax advisor of the firm’s Not-for-Profit Practice.  Al Traverso, CPA is a Partner at Sax with over 20 years of experience navigating audits and compliance issues, improving internal controls, cash flow analyses, risk management and tax challenges. He focuses on advising clients on financial strategy, improved operational efficiencies and the development and implementation of succession plans. He can be reached at atraverso@saxllp.com.

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VFL CORNER

Important Considerations for Business Valuations Amidst the COVID-19 Pandemic

Written by:

Megan Sartor, CPA, ABV, CFF Partner msartor@saxllp.com

OVID-19 has grown into a global pandemic causing social and economic disruption. As a result, capital markets have experienced increased market volatility. There may be instances where the value of businesses has decreased and the opportunity to transfer more wealth has increased. Absent the economic distress caused by the global pandemic, the possible change in presidential regime in November 2020 could lead to changes in the estate and gift tax area which would encourage business owners to transfer wealth in the near future to take advantage of the current estate and gift tax laws. However, mechanically applying traditional valuation approaches and methodologies could result in values that are unreliable. First, a little business valuation 101. There are three approaches to valuing a business including income-based, market-based and assetbased:

in determining the subject company’s value when a company has historically not generated enough income or cash flow to allow for an expected return on assets of a potential investor. Now, here are some considerations under each methodology for valuation dates occurring after February 2020: Income Approach Considerations - Valuation analysts should consider how COVID-19 will impact the projected financial and operational performance of the subject company. Many issues may be addressed, including the following: • When will social and economic conditions return to a more normal state at the national and local level? • What is the cash burn rate? • Is the company appropriately capitalized to survive?

Income Approach – Generally provides an indication of value by either capitalizing the operational results historically achieved by the entity, or by discounting its projected future earnings, however defined (e.g. net income, cash flows, etc.). This approach can be used when there exists a stable history and expectation of positive earnings or where there exists a projection of positive earnings for the year(s) subsequent to the date of valuation that are not indicated by historical results. Market Approach – Provides an indication of value based upon historical transactions of comparably privately held or publicly traded businesses. It is not necessary that the companies be identical, but rather comparable. The resultant value is determined by information gathered from either public or private sources and through the application of derived valuation multiples to the subject company. Asset Approach – Essentially replaces the historical cost of certain assets reported in the balance sheets with a fair market value for those assets if readily ascertainable either from independent appraisals, stipulation by the parties (in litigation matters) or through other estimation means. However, the asset approach can be important

• Will the company return to normal financial and operational performance after the effects of COVID-19 wane or will the “new normal” look materially different? • How will the company be affected by new regulations, social behavior, buying patterns, etc.? • What types of adjustments to the company’s financials are warranted? Are these adjustments temporary or permanent? If temporary, what is the time horizon? • What impact will government loans, stimulus payments and other support have on the financial performance of the company? How should these payments be reflected in future cash flows? • How will these changes impact cash flow adjustments such as depreciation, capital expenditures, and incremental working capital requirements?

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BUSINESS VALUATIONS

Each company will have its own specific set of facts and circumstances. However, it is reasonable to assume that financial projections prepared during 2019 will be materially different than projections prepared after February 2020. Historically, the capitalized cash flow method has been more widely accepted than the discounted cash flow model. However, greater emphasis will be placed on reasonable financial projections than done in the past. Valuation analysts will lean towards using a discounted cash flow model. The model can be for a shorter period of time than the traditionally used five-year period. Market Approach Considerations - It is very important to scrutinize market comparable transactions. The market transaction databases are comprised of transactions that have happened in the past. Therefore, the potential impact due to COVID-19 is not presented in the transactions. Prices paid in merger and acquisition (M&A) transactions that were negotiated prior to March 2020 may not consider the impact of COVID-19. If comparable transactions are identified, it may be challenging to apply M&A multiples unaffected by COVID-19 to earnings of a company that have been affected by COVID-19. Also, multiples based on forward earnings that were projected prior to March 2020 may not consider the current pandemic. Multiples from guideline public company (GPC) are typically calculated using valuation date stock prices and historical or projected earnings of the public companies. If these multiples are calculated based on stock prices affected by COVID-19 and earnings that do not reflect COVID-19, the application of these multiples to the historical or projected earnings of the subject company affected by COVID-19 may be challenging.

be appropriate. The current value of a subject company’s assets and liabilities may be materially different than their respective book values. To determine if a company is insolvent, the following should be considered and analyzed: • Does the company have adequate cash reserves and/or debt capacity to weather the proverbial storm? Estimate the cash burn rate. Stress test the company using various scenarios and estimating the timing and costs associated with recovery. • Is the company adequately capitalized? Consider the availability and impact of government-funded stimulus payments, loans and other short-term financial options (e.g. lines of credit, equity contributions). • Is the company able to meet its obligations when they come due? Project the timing of near term-debt payments and the company’s ability to comply with debt covenants. COVID-19 is changing the valuation landscape. Some changes may be temporary, and some may be permanent. Therefore, the mechanical application of traditional valuation methods in this environment may produce values that lack credibility and reliability. It is more important than ever for business owners to review their cash flows frequently and prepare reasonable financial projections. Financial projections will be critical in yielding reasonable and reliable business values.  Megan Sartor, CPA, ABV, CFF is a Partner at Sax and Head of the firm’s Valuation, Forensic and Litigation Department. Her work in litigation support includes matrimonial matters, shareholder disputes, and forensic investigations, among others. She can be reached at msartor@saxllp.com.

Asset Approach – In the current environment, it is a reasonable possibility that some companies are on the verge of insolvency. If a company is determined to be insolvent, the asset approach may Sax Focus • www.saxllp.com Page 19

TAX CORNER

Residency Considerations in the Age of COVID-19 Written by:

Kevin Sohr, MBA, MST State and Local Tax Specialist ksohr@saxllp.com

The present pandemic environment has created conditions where some taxpayers will need to reconsider their taxpayer residency determinations. During lock-down measures, we’ve seen employees working remotely from their homes and their secondary homes in order to remain safe. Many offices continue to be closed pending safe re-opening plans. These unique circumstances surrounding telecommuters and the potential for their lingering effects may lead to complicated residency determinations in 2020 and potentially in the years to come. In general, a taxpayer can become a resident taxpayer in a state by one of two means. A taxpayer will be a resident at the location of his/ her domicile. A domicile is a taxpayer’s home in the ordinary sense of the word: the location where he/she intends to return to, and the location where he/she keeps items “near and dear.” Determining a taxpayer’s domicile is a qualitative review. A taxpayer’s domicile, once established, is not easily relinquished. We would not expect temporary changes in a taxpayer’s facts to change his/her domicile during this pandemic. A taxpayer can also become a resident taxpayer by means of a statutory residency test. Unlike the domicile determination, this is a quantitative measure. If the taxpayer has access to a “permanent place of abode” for substantially all the year, and the taxpayer is present in the state for at least 183 days of the year, then he/she is a statutory resident of that state. Changes to living conditions during this pandemic may very well create statutory residency considerations and problems for taxpayers. As we consider a taxpayer’s profile, there are two types of changes which lead us to revisit previous determinations: changes in facts and changes in laws or guidance from the taxing authorities. The present pandemic crisis has led to changes of each. Many states have issued guidance indicating that they will temporarily relax nexus standards for out-of-state employers; temporary telecommuters

will not create nexus for their employers during this pandemic. But, taxpayers should be careful that these reliefs directed at employers should not give comfort to the employees with temporary work arrangements. A New Yorker weathering the pandemic at his/her summer home in Connecticut may not create nexus for his/her employer based on his/her temporary relocation. However, it is a leap to draw the conclusion that he/she doesn’t create residency. His/her boss may not become taxable in Connecticut, but he/she may become a statutory resident of the state. It is this common fact pattern, a temporary relocation from a domicile to a vacation home, that taxpayers should be alert to. As mentioned earlier, statutory residency is a two-part test designed to be quantitative in nature. Does the taxpayer have a permanent place of abode for substantially all the year? Does the taxpayer spend 183 days in the state of that abode? If the answer to both of those questions is yes, then that is a statutory resident. A permanent place of abode is a home suitable for year-round living where the taxpayer has access for substantially all the year. A summer home that lacks modern winter heating is not a permanent place of abode. A secondary home that is rented to independent parties for half the year also does not qualify as the taxpayer doesn’t have access to it for substantially all the year. But if a taxpayer owns a vacation home without limitations to access, that will be a permanent place of abode. The day count has become an exercise in precision. Years ago, auditors would review a taxpayer’s bank records, credit card statements, electronic tolls, and personal diaries to arrive at a day count. Auditors continue to review these sources, but they now increasingly rely on the taxpayer’s cellphone records to determine his or her whereabouts. If you haven’t looked at your cellphone records recently, they present a surprisingly detailed record of your phone’s location. Sax Focus • www.saxllp.com Page 20

RESIDENCY CONSIDERATIONS

We should also keep in mind that the day count reflects the taxpayer’s days within the state, which is not necessarily the same as the days spent at the permanent place of abode. The Connecticut domiciliary may not have weathered the pandemic at his/her home in the Hamptons, but he/she may have visited their parents in Westchester daily. His/her statutory residency test will depend on the number of days spent in New York State. He/She may spend 183 days in the state without ever visiting their vacation home, yet that still creates residency in the state. Some changes in facts are temporary and may lead to temporary changes in residency determinations. They may also inspire or accelerate long-term changes in facts which taxpayers should actively manage. Consider a New York domiciliary who had planned to retire to a long-time vacation home in Florida. Temporarily relocating to the vacation home has revealed that he/she can work productively from their Florida home. If this taxpayer desires to change their domicile from New York to Florida, they should actively create the facts necessary to prove this position.

The COVID-19 virus has affected the way everyone conducts business. Individuals should be mindful that the changes in their fact patterns, even temporary changes, can lead to significant changes to their state tax reporting obligations and liabilities. Further, they should look at this as an opportunity to manage their residency from both statutory and domicile perspectives. In case you missed it, we invite you to watch our webinar update on COVID-19’s impact on state and local taxes and the related adjustments to our economic lives. Topics addressed include: residency and dual residency / double taxation resulting from use of vacation homes or temporary locations; sourcing of income from employees while telecommuting; nexus considerations for employers with a telecommuting workforce; and, updates on New Jersey’s Business Alternative Income Tax (i.e., pass-through entity tax) and New Jersey’s latest tax adjustments in the state budget.  Kevin Sohr, MBA, MST is a State and Local Tax Specialist at Sax with more than 20 years of experience in state taxes. He advises clients on all matters, including income/franchise taxes, sales/use taxes, property tax, unincorporated business tax and various specialty taxes. He can be reached at ksohr@saxllp.com.

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HEALTHCARE CORNER

Overview of Phase 3 of the Provider Relief Fund for Healthcare Providers Written by:

Deborah Nappi,

CPA, MST

Director dnappi@saxllp.com

As part of the CARES Act, the Department of Health and Human Services (HHS) has been distributing Provider Relief Fund (PRF) payments in phases, using both general and target distributions. The PRF was initially allocated $175 billion under the CARES Act through Phase 1-2 to reimburse eligible healthcare providers for healthcare-related expenses and lost revenues attributable to COVID-19. On October 5, 2020, Phase 3 of the Provider Relief Fund opened for applications with an additional $20 billion in new funding for providers on the front lines of the pandemic, including those who were previously ineligible for funding. The deadline to apply is November 6, 2020.

HHS has already issued over $100 billion in relief funding to providers through prior distributions. Still, HHS recognizes that many providers continue to struggle financially from COVID-19’s impact. For eligible providers, the new Phase 3 General Distribution is designed to balance an equitable payment of 2 percent of annual revenue from patient care for all applicants plus an add-on payment to account for revenue losses and expenses attributable to COVID-19.

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PROVIDER RELIEF FUND Here is a recap of Phase 1-2 of Provider Relief Funding: Phase 1 Funding To have been eligible for a Phase 1 – General Distribution payment, providers must have billed Medicare fee-for-service (Parts A or B) in Calendar Year 2019. Additionally, under the Terms and Conditions associated with payment, these providers were eligible only if they provided after January 31, 2020, diagnoses, testing, or care for individuals with possible or actual cases of COVID-19. HHS broadly views every patient as a possible case of COVID-19. These funds were distributed as automatic deposits into the healthcare providers' accounts, and they did not need to apply for it. Phase 2 Funding On July 31, 2020, the HHS granted another opportunity for healthcare providers to apply for the PRF under Phase 2, aimed at reimbursing eligible healthcare-related expenses and lost revenues attributable to COVID-19. Healthcare providers who had already received a payment under Phase 1 of the PRF were still eligible to apply for additional funds under Phase 2, as long as they had not yet received a payment that is approximately 2% of annual revenue from patient care. Eligible providers had until August 28, 2020 to apply for Phase 2 funding. Here is an overview of Phase 3 of the PRF (Now open for applications until November 6, 2020): Phase 3 Funding Under this Phase 3 General Distribution, providers that have already received PRF payments may still apply for additional funding that considers financial losses and changes in operating expenses caused by COVID-19. In addition, previously ineligible providers may now apply, including those providers who began practicing in 2020 as well as an expanded group of behavioral health providers, including addiction counseling centers, mental health counselors, and psychiatrists. The application window is open from Monday, October 5 until November 6, 2020, and providers can apply on the Provider Relief Fund Application and Attestation Portal. The following documentation is required to be submitted with the application: • Most recent federal income tax return for 2017, 2018, or 2019, unless exempt; • Revenue worksheet; and • Operating revenues and expenses from patient care.

• Provided patient care after January 31, 2020 (Note: patient care includes healthcare services and support as provided in a medical setting, at home, or in the community); and • Did not permanently cease providing patient care directly or indirectly; and • For individuals providing care before January 1, 2020, had gross receipts or sales from patient care reported on Form 1040 (or other tax form). • The applicant must meet at least one of the following: Î Billed Medicaid/CHIP programs or Medicaid managed care plans for health-related services between January 1, 2018 and March 31, 2020; or Î Billed a health insurance company for oral healthcare-related services as a dental service provider as of March 31, 2020; or Î Was a licensed dental service provider as of March 31, 2020, who does not accept insurance and has billed patients for oral healthcare-related services; or Î Billed Medicare fee-for-service between January 1, 2019 and March 31, 2020; or Î Was a Medicare Part A provider that experienced a CMSapproved change in ownership prior to August 10, 2020; or Î Was a state-licensed/certified assisted living facility as of March 31, 2020; or Î Was a behavioral health provider as of March 31, 2020 who has billed a health insurance company or who does not accept insurance and has billed patients for healthcarerelated services as of March 31, 2020. There is no direct ban under the CARES Act on accepting a payment from the Provider Relief Fund and other sources such as the SBA Paycheck Protection Program. By attesting to the terms and conditions, the recipient certifies that it will not use the payment to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse. Keep in mind that the payment from the Provider Relief Fund is includible in gross income. For more information or assistance complying with the financial reporting requirements of the Provider Relief Fund, we welcome you to reach out to Sax’s Healthcare Practice. Please also stay tuned for our next article that will do a deep dive on the financial reporting requirements of the Provider Relief Fund.  Deborah Nappi, CPA, MST is a Director at Sax and a vital member of the firm’s Healthcare Practice. Debbie focuses her attention on the rapidly changing healthcare landscape. In this role, she leads the firm’s healthcare clients through all aspects of the CARES Act, including PPP and PRF compliance. In addition to specializing in revenue cycle management and productivity analysis, she also serves as interim CFO during M&A transactions, mitigating risk and ensuring a smooth and successful process. Debbie can be reached at dnappi@saxllp.com.

Eligibility for Phase 3 • All submissions for a Phase 3 payment will be reviewed to determine whether the applying provider has already received a PRF payment equal to approximately 2% of patient care revenue from prior PRF general distributions. • Provider must have filed a federal income tax return for fiscal years 2017, 2018, and 2019 if in operation before January 1, 2020; or was exempt from filing a return; and

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CONTACT

Parsippany, NJ 973.472.6250 Pennington, NJ 609.737.6600 New York, NY 212.661.8640 www.saxllp.com

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