Modrall Sperling COVID-19 Task Force Updated January 15, 2021
*This article is authored by Roberta Cooper Ramo with Seth J. Barany, Alicia Ubeda Harvey, Nicole T. Russell, Haley B. Adams, Jamie L. Allen, and other Modrall Sperling attorneys.
Modrall Sperling strives to be a resource for our clients as they strategize how to safely continue their businesses amidst the ever changing landscape of COVID-19 regulations. In this article, we endeavor to provide answers to frequently arising questions and provide resources to our clients. Please note that the law, the regulations, and judicial interpretations are in a constant state of flux. Before acting upon any of the information contained in this article, please consult with one of our attorneys to ensure that there have not been changes that might affect your planned course of action. Earlier archived versions of this Article may be accessed here. Though the information they contain is outdated, the history and fuller context of the issues discussed may be helpful.
Congress on December 21, 2020 passed a complicated bill responding to the economic and health crises resulting from the ongoing pandemic of COVID-19. Several days later, the President signed it into law.
This complicated legislation is known as the Consolidated Appropriations Act (CAA). It contains corrections to some issues that arose from the previous CARES Act, an extension of some benefits and the addition of others. As in the original CARES Act, it is complicated (the bill itself contains 5,593 pages) and often unclear.
Set out below are some of the major provisions that may affect many of our clients. As under the first act, there are virtually daily pronouncements that clarify or further confuse specific provisions of the Act. We expect that additional changes in interpretation and delivery of funds are likely to come with the change of administration on January 20, 2021.
1. What Federal Programs remain available to help businesses and individuals under the new Consolidated Appropriations Act (CAA)?
A. The CAA Modifies, Extends and Clarifies elements of the Paycheck Protection Program Flexibility Act
The Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act) funded by the Coronavirus Aid, Relief and Economic Security Act, “the CARES Act”, was created to provide loans for businesses. On August 8, 2020, the Small Business Administration (SBA) stopped accepting Paycheck Protection Program (PPP) loan applications under the CARES act.
The Consolidated Appropriations Act (CAA) appropriated $284 billion for a second round of PPP loans. The SBA has announced that the application period for this second round of funding opened on January 11, 2021. Businesses that did not receive PPP loans during the first round of funding will be able to apply as soon as the application period opens, while businesses that did receive PPP loans during the first round of funding will be able to apply for second draw loans starting January 13, 2021. On January 8, 2021, the SBA issued Interim Final Rules providing guidance for how this second round of PPP funding will be administered. The Rule providing guidance for first-time borrowers can be found here, and the Rule providing guidance for second round loans can be found here. The Rules and the CAA made the following important changes to the Program:
- The CAA appropriates $284 billion to fund a second round of PPP loans and extends the application period through March 31, 2021. First time applicants can apply by submitting this form to a qualified lender along with supporting documentation. The SBA has announced it will release a new form for use in applying for second round loans, but that form is not yet available. We will update this page with a link once it is released.
- Businesses that did not receive PPP loans during the first round of funding are eligible for a loan if:
- The business employs 500 or fewer employees (this number is reduced to 300 for otherwise eligible 501(c)(6) organizations);
- The business was in operation on February 15, 2020; and
- The business had employees for whom it paid salaries, the business paid independent contractors as reported on Form 1099-MISC, or the business is a self-employed individual, independent contractor, or sole proprietorship with no employees.
- Businesses that received PPP loans during the first round of funding are eligible for a second loan if:
- The business has spent the full amount of its first round PPP loan, or will spend the full amount on or before the date the second loan will be disbursed;
- The business employs 300 employees or fewer; and
- The business can produce gross receipts data demonstrating a 25% reduction in 2020 revenue, as compared to the same quarter of 2019. Businesses can choose which quarter to use as a baseline for this comparison, and businesses submitting applications after January 1, 2021 may establish eligibility using gross receipts from the fourth quarter of 2020.
- Businesses that were in operation for all four quarters of 2019 can also establish the necessary reduction in revenue on an annual basis by submitting copies of their annual tax forms showing a 25% or greater decline from 2019 to 2020.
- The maximum amount a business can receive in a second round PPP loan has been reduced to $2 million, down from the $10 million limit applicable to first round loans.
- Businesses operating in the accommodation or food services industries will be allowed to receive PPP loans of up to three and one half times their monthly average payroll costs, all other businesses are eligible for loans of up to two and one half times their average monthly payroll costs (the $2 million limit applies in all cases).
- Businesses can calculate their monthly average payroll cost using data from either 2019 or 2020.
- Businesses operating in the accommodation or food services industries will be allowed to receive PPP loans of up to three and one half times their monthly average payroll costs, all other businesses are eligible for loans of up to two and one half times their average monthly payroll costs (the $2 million limit applies in all cases).
- Notably, the CAA permits some 501(c)(6) organizations that were previously ineligible for PPP assistance to receive a loan under the program. To qualify, a 501(c)(6) organization:
- Must employ no more than 300 employees; and,
- Cannot be primarily engaged in political or lobbying activities
- Specifically, the lobbying activities of the organization cannot comprise more than 15% of the organization’s total activities, the organization cannot receive more than 15% of its gross receipts from lobbying activities, and the cost of the organization’s lobbying activities cannot exceed $1 million per year, calculated using the organization’s most recent tax year ending prior to February 15, 2020.
- The CAA also permits certain news organizations that were ineligible for funding due to their affiliation with newspapers to access PPP funds. Any FCC licensed news station is eligible for funding if it either:
- Employs fewer than 500 employees per physical location (or otherwise complies with applicable SBA size standards); or
- Is a non-profit news organization designated as a public broadcasting entity by the Communications Act of 1934.
To be eligible, a for-profit news organization must be majority owned or controlled by a newspaper publishing company or business engaged in the radio or television broadcast industry.
Any news organization receiving PPP funds must certify that PPP funds will be used to pay expenses related to distributing locally-focused or emergency information
- Businesses affiliated with the People’s Republic of China or Hong Kong are barred from receiving any PPP funding under the Supplemental Act. A business is excluded from receiving PPP funds if 1) it is owned by an entity created in or organized under the laws of either China or Hong Kong, if that entity owns 20% of the business or more, or 2) a member of the business’ board of directors is a resident of People’s Republic of China.
- Publicly traded businesses are not eligible for PPP loans under the CAA.
We expect more information regarding this new round of PPP loans to be released by the Small Business Administration and other government agencies in the coming weeks. We will continue to update the Modrall Sperling Website to reflect this guidance as it becomes available.
B. The Main Street Lending Program
The Federal Reserve established the Main Street Lending Program to support lending to small and medium-sized businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. This program stopped accepting applications on December 31, 2020. While in operation, the Program ran through five facilities. The most up to date term sheets for each facility and FAQs can be accessed here.
C. Student Loan Payment Relief
On August 8, 2020, President Trump issued the Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic, available here. Essentially, this allowed borrowers of student loans that are held by a federal agency to suspend payments until December 31, 2020 without penalty or accrual of interest. However, this relief does not apply to borrowers whose student loans are held by private entities. This emergency relief was later extended to suspend payments on federally held student loans through January 31, 2021.
D. Mortgage Assistance
The loan origination flexibilities through Fannie Mae and Freddie Mac announced by the Federal Housing Finance Agency have been extended through January 31, 2021. The flexibilities include buying qualified loans in forbearance, alternative appraisals on purchase and rate term finance loans, alternative methods for documenting income and verifying employment before loan closing, and expanding the use of powers-of-attorney to assist with loan closings. The Federal Housing Finance Agency’s most recent press release is available here.
E. Deferring Payroll Tax Obligations
On August 8, 2020, President Trump issued the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, available here. While most employers did not offer this option, for those that did the Internal Revenue Service (IRS), later issued guidance, available here, stating that repayment of payroll taxes for applicable wages was postponed until the period beginning on January 1, 2021, and ending on April 30, 2021. Congress subsequently extended this repayment period for deferred payroll taxes through December 31, 2021 as part of the Consolidated Appropriations Act signed into law on December 27, 2020.
F. Grants for Shuttered Venue Operators
The Consolidated Appropriations Act appropriated $15 billion for the Small Business Administration to make grants to certain businesses with operations that have been severely impacted by the virus. Qualifying businesses include live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators or talent representatives that meet certain requirements. Any of these businesses that can demonstrate a 25% reduction in revenue as compared to 2019 are eligible to apply. Of the $15 billion in available funding, $2 billion has been set aside specifically for eligible businesses that employ fewer than 50 full-time employees. Because the new statute contains many fine points and distinctions as to what businesses qualify, individuals with questions about whether their business qualifies for funding under this program should consult legal counsel.
Businesses receiving funds under this program are limited in how they use those funds to pre-determined categories of eligible expenses. These categories of eligible expenses are similar to the eligible expenses under the PPP and include payroll costs, mortgage/rent payments, utilities, personal protective equipment for employees, payments on loans in existence before February 2020, and maintenance expenses.
While the SBA has not yet released guidance concerning the application process for these grants, the CAA itself mandates an incremental approach to distributing funds. During the first 14 days of the program, grants will only be awarded to eligible entities who can demonstrate a 90% or greater revenue loss. For the 14 days following the initial 14-day period, grants will only be awarded to eligible entities who can demonstrate a 70% or greater loss of revenue. After these two periods have passed, grants can be awarded to any eligible entity.
Notably, an entity that receives a grant under this program is ineligible to receive a loan under the PPP.
2. Is there any new guidance regarding loan forgiveness under the PPP?
The guidance for PPP loan forgiveness has evolved over time. The frequent changes to the PPP forgiveness process can be confusing. The information below is intended to provide a general overview of the current PPP loan forgiveness provisions. For specific questions regarding your PPP loan you should contact your lender and consult legal counsel with additional questions.
PPP loan borrowers apply for forgiveness through their SBA approved lender, not the SBA. Forgiveness guidance is available on SBA’s PPP page.
For those borrowers who already applied for forgiveness, the SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders October 2, 2020. If you have already submitted a loan forgiveness application and you are uncertain of the status of your application, it is very important that you check with your lender and not assume that the application has all of the information required under any new funding act. Every item required to be documented must be complete for a lender to submit a forgiveness application to the SBA.
Note that if a borrower does not submit a forgiveness application within 10 months of the end of the Covered Period (borrowers may choose any time period between 8 and 24 weeks beginning immediately upon disbursement of PPP funds as their Covered Period), deferral on PPP loans ends, and borrowers must begin making payments. This and other helpful guidance can be found on SBA’s Loan Forgiveness Fact Sheet, available here.
The SBA has also offered guidance on appealing rejections of PPP loan forgiveness applications. See Subsection B below for an outline of the procedure to appeal PPP loan forgiveness applications that have been rejected.
Regardless of whether or not you have submitted your loan forgiveness application, it is important to keep detailed records of how you are complying with the stringent PPP loan rules. Applicants should continue to maintain detailed records, ask for receipts, and keep all supporting information, from the beginning of the covered period. While the PPP rules only require that you keep records for 6 years, we suggest you keep your records for the 7 years required by the IRS because there can be tax implications associated with the loans. Applicants should draft memos—reviewed by counsel—to document eligibility for loan forgiveness.
A. Loan Forgiveness Requirements
Loan forgiveness is based upon the business’ actions during the covered eight to twenty-four-week period. From there, forgiveness is determined by certain costs incurred and payments made throughout the covered period. Payroll costs are the primary eligible costs, and include:
- Salary, wages, commission or similar compensation (limited to $100,000.00 compensation or less per employee)
- Payments for vacation, parental, family, medical or sick leave (this may be limited if the Employer got benefits under the Families First Corona Virus Response Act, FFCRA)
- Allowance for dismissal or separation
- Payments for the provision of group health care benefits, including insurance premiums
- Payments for retirement benefits
- State or local payroll taxes
Under the PPP Flexibility Act, available here, no more than 40 percent of the loan forgiveness amount can be attributable to non-payroll costs. Those non-payroll costs eligible for forgiveness include:
- Interest payments on mortgages incurred in the ordinary course of business on real or personal property in existence as of Feb. 15, 2020
- Rent payments under leasing agreements in existence as of Feb. 15, 2020
- Utility payments for electricity, gas, water, transportation, telephone or internet for which service was in existence as of Feb. 15, 2020.
The Consolidated Appropriations Act, passed in December 2020, expanded the types of costs eligible for forgiveness under the PPP. In addition to the categories above, eligible costs include:
- Covered Operations Costs – Payment for business software or cloud computing services that help facilitate business operations
- Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Payments to suppliers for perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the declared national emergency (currently set to expire on April 30, 2021).
It is possible the borrower’s forgiveness amount could still be proportionately reduced if the business has reduced its number of full-time equivalent (FTE) employees, or if the business has reduced the salary or wages of certain employees. The PPP Flexibility Act has loosened those restrictions in the following ways:
- Workforce Restoration Timeline Extended: Borrowers were given until December 31, 2020, to restore their workforce levels and wages to qualify for full loan forgiveness. The prior deadline was June 30, 2020.
- Forgiveness Requirements Eased: If borrowers can in good faith document that from February 15, 2020 to December 31, 2020 they could not: (1) rehire individuals who were employees on February 15, 2020, or hire similarly qualified employees for unfilled positions on or before December 31, 2020; or (2) return to the same level of business activity at which such business was operating before February 15, 2020, because of COVID-19-related operating restrictions, they may still have their loans fully forgiven without fully restoring their workforces.
As mentioned above, the rules for PPP loan forgiveness have changed over time. For a full chronological list of all the interim rules posted starting April 2 up until now, go here or visit past versions of our site to see their evolution.
B. Loan Forgiveness Applications
The Consolidated Appropriations Act, passed in December 2020, created a simplified forgiveness process for PPP loans under $150,000. Under this simplified process, borrowers need only submit a signed letter of certification to their lender verifying their eligibility for forgiveness. This letter, limited to one page or less, must state:
- The number of employees the borrower was able to retain because of receiving the PPP loan;
- An estimated amount of the PPP loan the borrower spent on payroll or other categories of covered costs; and
- The total amount of the loan.
The Small Business Administration is required to create a form for borrowers to use in submitting this letter of certification, and we will update this page with a link to that form once it becomes available.
Borrowers are NOT required to submit any additional supporting documentation under this simplified forgiveness process, but borrowers should nonetheless retain relevant records in the event of an audit.
If your loan was for over $150,000, you must determine whether you qualify for Form 3508EZ which may only be used by borrowers who are either self-employed, independent contractors, or sole proprietors. If none of these apply to you, then your forgiveness application must be done on Form 3508, last updated June 16, 2020. Both forms have further requirements regarding employees’ salaries and wages, as well as possible deductions. For those specifics you should consult the forgiveness application instructions for each form and the SBA’s Frequently Asked Questions regarding Paycheck Protection Program Loans, last updated October 13, 2020 and available here.
There is an appeal process for borrowers whose PPP loan forgiveness applications are denied by their lender. The appeal process for PPP loan forgiveness denial was issued by the SBA on August 25, 2020 through an interim final rule, available here. If a borrower’s PPP loan forgiveness application is denied by its lender, the borrower should request SBA review. The SBA is accepting appeals by email at firstname.lastname@example.org, by fax at (202) 205-7059, and via the Hearing and Appeals Submission Upload Application, available here.
If the final SBA review process also denies the borrower’s PPP loan forgiveness application, the borrower may appeal through the SBA’s Office of Hearings and Appeals. To appeal, borrowers must follow the steps outlined in the interim final rule, including filing the appeal petition within 30 calendar days after receipt of the final SBA loan review decision.
3. What do PPP Loan Recipients Need to Know under the Consolidated Appropriations Act?
Under the CARES Act, if a borrower applying for PPP loan forgiveness also received an Economic Injury Disaster Loan Advance (EIDLA), SBA was required to reduce the borrower’s loan forgiveness amount by the amount of the EIDL advance. The Coronavirus Response and Relief Supplemental Appropriations Act repealed this requirement. As such, borrowers who received EIDLAs will be eligible for forgiveness up to the total amount of their loan.
Additionally, PPP recipients should be aware that the SBA may review any PPP loan, regardless of size, to determine if the borrower was eligible for PPP loans under the CARES Act, whether the borrower calculated the loan amount correctly and used the funds for eligible costs, and whether the borrower is eligible for the amount of loan forgiveness it requests. For this reason, it is critical that borrowers keep all paper and electronic records related to loan disbursement and spending for at least 6 years after the date that the loan is forgiven or repaid in full. (Six years is the minimum for PPP purposes, but for tax purposes, as noted above, we recommend seven years.)
However, FAQ 46, available here, provides that if the SBA in the course of its forgiveness review comes across a mistake on the part of the borrower, the SBA will notify the borrower, who can repay the loan without penalty. If you received a PPP loan and are contacted by the SBA regarding a mistake you should contact your legal counsel and accountants right away.
Borrowers who received a PPP loan of $2 million or more are required to fill out a Loan Necessity Questionnaire, available here, as part of the SBA’s review process. Borrowers who received $2 million or more in PPP loans should consult legal counsel regarding the responses to and possible consequences of these questionnaires for the Borrower.
If you are PPP recipient contemplating a sale of assets of your business, you need to consider the SBA rules regarding loan forgiveness in that context. On October 2, 2020, the SBA issued a procedural notice clarifying when borrowers of PPP loans and their lenders need SBA permission for changes of ownership. The recently issued procedural notice changed the definition of a “change of ownership.” Part of the change in definition means that if the sale or transfer is less than 50% of the company’s equity or assets and the borrower has already completed a PPP forgiveness application with the lender, PPP borrowers and lenders do not need to seek SBA approval. If the sale or transfer is 50% or more of the company’s equity or assets, the borrower may need SBA approval depending on whether the borrower has completed the following requirements with the lender: (1) the borrower has completed a PPP loan forgiveness application; (2) the borrower has submitted the PPP loan forgiveness application to its PPP loan lender; and (3) the borrower has set up an interest-bearing escrow account with that lender to cover the PPP loan. However, if any of those requirements cannot be met, the borrower must still get SBA approval for the sale or transfer. Previously, SBA approval was always required. Notably, even if business ownership is transferred, the original borrower is still responsible for the PPP loan.
If your business is a PPP borrower and has not obtained PPP forgiveness, you should consult with your lender before planning any sale of equity or assets. Additionally, we recommend consulting legal counsel prior to agreeing to any transfer of equity or assets so that a clear plan to maintain loan forgiveness is determined. Meg Meister and Ian Bearden are working in this area.
4. What COVID-19 Restrictions are in Place in New Mexico? Are COVID-19 Vaccines Available?
The statewide public health emergency first proclaimed by Governor Michelle Lujan Grisham in Executive Order 2020-004 has been renewed and extended many times. Most recently, it was renewed through January 8, 2021 in Executive Order 2020-085. This section aims to highlight the major regulations impacting New Mexico businesses and non‑profit corporations.
A. The Red to Green Framework
The latest order from the New Mexico Department of Health (the “Department”) imposes a highly restrictive, but now nuanced, set of public health related restrictions. The Department’s November 30, 2020 order announced a tiered county-by-county COVID‑19 risk system. This system is called the Red to Green Framework (the “Framework”). The Framework is designed to enable counties to shed burdensome restrictions as soon as public health data shows the virus is retreating within their borders. The Framework became effective December 2, 2020. A general description of the Framework is outlined below but for detailed information read the Department’s Public Health Order issued on November 30, 2020 or go to the Department’s Red to Green Framework page.
- The Framework has 3 levels: Green, Yellow, and Red.
- A county’s Framework level is based on specified health metrics.
- The required public health restrictions vary depending on the county’s Level.
- The Department’s official mapdisplays each county’s current Level and is updated every Wednesday.
- If a county fails to meet the specified metrics for a given level, the county must begin operating at the lower level’s restrictions within 48 hours of the map’s update.
- If a county begins meeting specified metrics for a less restrictive level, the county may begin operating at that level’s restrictions immediately upon the map’s update.
- Similar to previous amended orders, there are different operational and occupancy restrictions depending on the classification of the business or entity in question. For example, “essential businesses” have very different restrictions than “Food and Drink establishments” and each category’s restrictions vary depending on the county’s level. There are different restriction levels for each classification and within each Level. These differences are explained on the Department’s Red to Green Framework page.
B. Ongoing Public Health Requirements and Restrictions
No matter a county’s level on the Framework, the following requirements remain in place throughout New Mexico:
- Facemask Mandate:Facemasks are required to be worn in public.
- Mandatory Quarantine for Individuals Traveling into New Mexico: A mandatory 14-day quarantine is still in place for all individuals traveling into New Mexico from states deemed high-risk. The list of those states deemed “high-risk” is continually changing and is updated weekly. The map of “high-risk” states can be found here. The most recent Executive Order regarding mandatory quarantine is Executive Order 2020-075, which was renewed by Executive Order 2020-085
- Rapid Response COVID-19 Watch List:Any organization with two or more “rapid responses” in the last 14 calendar days is included on the New Mexico Environment Department’s Rapid Response COVID-19 Watchlist. A “rapid response” refers to a reported incident of COVID‑19 in the workplace to a state agency. Reporting of COVID-19 incidents in the workplace is required. Frequently Asked Questions about the watch list are available here.
- Temporary Closure of Hotspot Businesses: Businesses that accrue a significant number of positive COVID-19 cases within their workforce in a two-week span are subject to temporary closure by the Department of Health. The Department’s press release is available here.
- The closure process is triggered if four or more rapid responses occur within a 14-day period.
- An essential business may be permitted to continue operating if state agencies determine the business is a necessary provider of goods or services within the community in light of geographic considerations.
- Businesses that test each employee every two weeks and regularly provide contact tracing data to the Environment Department will not be subject to closure under this framework
- Enhanced Safety Requirements for Businesses and Nonprofits:Businesses and nonprofits must adhere to the state’s COVID-Safe Practices.
C. Shareholder Meetings During COVID-19 Public Health Emergency
On November 24, 2020, Governor Michelle Lujan Grisham issued an Executive Order stating that any corporate bylaw requiring in-person shareholders’ meetings is temporarily invalid and unenforceable to the extent that it would require violating a Public Health Order. Furthermore, it directs that any shareholders’ meetings scheduled in January, February and March of 2021 are to be conducted by audiovisual means. The November 24th Executive Order is available here.
Shareholders’ meetings and Board of Directors meetings have not been identified as “essential” and have not been exempted from the Department’s Executive Order prohibiting “mass gatherings.” For a complete list of categories and definitions visit the Department’s website, available here. Under the Framework system, the number of individuals considered to be a “mass gathering” changes based on the county’s current level. Under the Red Level, all “mass gatherings” of more than five individuals are prohibited. For other levels, check the Department’s Red to Green Framework page.
Note that the United States Securities and Exchange Commission issued “Staff Guidance for Conducting Annual Meeting in Light of COVID-10 Concerns” which relaxes certain requirements and explains how virtual or hybrid meetings can be lawfully conducted under federal law during the COVID-19 pandemic. That guidance is available here.
If you have any concerns about conflicts between the SEC guidance and the state requirements for shareholders or directors meetings or are not sure how to comply with both, you should check with legal counsel.
D. Availability of COVID-19 Vaccines
New Mexico has received its first batch of COVID-19 vaccines, but initial doses have been reserved for members of “priority groups,” including hospital employees, first responders, and other healthcare workers on the front lines of the pandemic. The New Mexico Department of Health has opened a registration page for individuals outside these priority groups to register to receive the vaccine once it is made available to the public. That page can be found here. Individuals with questions about New Mexico’s rollout of the vaccine or the registration process can call 855-600-3453 for assistance.
There is no definite timeline for when vaccines will be widely available, but the New Mexico Department of Health estimates the general public will be able to receive vaccines by mid-2021.
These are the lawyers who have been working in this area: Marco Gonzales, Walter Stern, Lynn Slade, Stuart R. Butzier, Brian Nichols, Christina C. Sheehan, Vanessa Kaczmarek, Marjorie Rogers, Roberta Ramo, Jennifer Anderson, and Meg Meister.
5. What Programs Are Available to Aid New Mexico Businesses Harmed by COVID‑19?
A. The Small Business CARES Relief Grant Program
The Small Business CARES Relief Grant Program closed on December 18, 2021. The Program was created by the State of New Mexico in the November 2020 Legislative Special Session to provide $100 million in grant funding to New Mexico small businesses that are experiencing financial hardship due to the pandemic. The Program was being administered through the New Mexico Finance Authority.
Businesses were awarded grant amounts of up to $50,000. The grant award amount was based upon the number of individuals employed by that business. Businesses could apply for this grant regardless of whether they had already received other State or Federal assistance.
The grant application process opened the week of December 7 and closed at noon on Friday, December 18. The first application deadline was noon on December 10, 2020. Applications were be funded in three rounds. All funding was expected to be disbursed by December 24, 2020.
B. The Small Business Recovery Loan Fund
The Small Business Recovery Fund (the “Fund”) stopped accepting applications on December 31, 2020. The Fund was being administered by the New Mexico Finance Authority. Eligible businesses could qualify for a loan of up to $75,000 from the Fund. The loans did not require a personal guarantee or collateral and carried a fixed low interest rate for the life of the loan.
There were no loan fees and loans had an initial three-year term with interest-only payments for the first three years. Principal and remaining interest due on the third anniversary of the funding date or the remaining principal and interest could be converted into a loan with monthly principal and interest payments with a term of an additional three years. There is no pre-payment penalty for paying the loan off in advance.
Loan applications were being processed on a first-come, first-served basis. The application period closed on December 31, 2020.
C. The New Mexico Recovery Fund
The New Mexico Recovery Fund, L.P., is a $100 million direct lending facility designed to help larger New Mexico-based business make it through the current crisis. The money comes from the State Private Equity Investment Program and is administered by Sun Mountain Capital. This fund is for New Mexico business with 40 or more employees. Loans sizes vary based on the entity’s operating expenses but can range between $500,000 and $10,000,000. Note that there is no loan forgiveness component to the New Mexico Recovery Fund, L.P. The basic eligibility requirements are that the business:
- Meet the definition for a “New Mexico based business.”
- Employ 40 or more New Mexico based employees.
- Demonstrate negative COVID-19 economic impact.
- Commit to spending at least 80% of loan proceeds in New Mexico.
To learn more about eligibility requirements and the application process visit Sun Mountain Capital’s website.
D. City of Albuquerque Small Business Economic Relief Grant
While not a statewide resource, the City of Albuquerque Economic Development Department had set up a Small Business Economic Relief Grant, which offered a one-time payment of up to $10,000 to local for-profit small businesses.
Note that the City of Albuquerque started accepting the third round of applications on December 7, 2020. The application period closed on December 11, 2020.
6. How has COVID-19 affected tax filings, tax matters and retirement plans?
As a result of the CARES Act, for 2020, individuals who do not itemize deductions are nevertheless allowed to take a deduction for cash gifts made to charitable organizations, other than donor advised funds or supporting organizations. The amount of the allowed charitable deduction is the lesser of the value of the cash gifts or $300 ($600 if married filing jointly).
For 2020, as to an individual who does itemize deductions, the individual is entitled to a deduction for cash contributions made to charitable organizations, other than donor advised funds or supporting organizations. The amount of the allowed deduction is the lesser of the value of the cash gifts or 100% of the individual’s adjusted gross income.
A corporation may claim a deduction for cash gifts made to charitable organizations, other than donor advised funds or supporting organizations. The amount of the allowed deduction is the lesser of the amount of the cash donations or 25% of the corporation’s taxable income. These increased deduction limits for charitable contributions only apply to cash gifts made in 2020.
The Consolidated Appropriations Act clarifies that PPP recipients will be allowed to deduct from their taxable income deductible expenses paid with the proceeds of a PPP loan, even if that loan is ultimately forgiven. As a result, PPP recipients will be able to deduct business expenses as if they had used non-PPP funds to cover those costs.
The CARES Act has a number of very important exemptions or changes to rules concerning retirement plans of all kinds. These range from changes providing large loans and distributions from qualified plans for those qualifying for them to suspension of required minimum distributions (RMDs). Other changes were made that might make a difference in your decisions about charitable gifts from IRA’s and certain estate planning matters. For example, qualified individuals have three years to return COVID-19 related distributions from IRAs and retirement plans.
For Retirement Plan questions of all kinds, Karen Kahn is working on these matters.
For other tax matters, including state taxes and estate tax questions the following lawyers are able to help: Vanessa Kaczmarek, Marjorie Rogers, Ian Bearden, Zack McCormick, Roberta Ramo and Nadine Shea.
7. Are there any health insurance or health plan issues?
Certain protections of continuation of health benefits are covered by the CARES Act. However, many of these depend upon the hour requirements of the employer’s plan and there may be state insurance rulings that have changed. The U.S. Department of Labor (DOL) and the IRS have waived health plan claims deadlines for both employees and employers, including deadlines for paying COBRA premiums. The waiver of deadlines has continued into 2021. The Consolidated Appropriations Act of 2021 (“CAA”) added to the May 13th IRS Notices that permitted carryover for Health FSAs and DCRAs. Under CAA, Employers can 1) permit the carryover of all unspent Health FSA and DCRA funds from 2020 in to 2021 and from 2021 to 2022; 2) permit prospective Health FSA and DCRA account changes in 2021 without a qualifying status change, 3) allow unused DCRA funds for childcare reimbursement incurred in 2020 and 2021 for children up to age 14, and 4) permit employees who cease participation in 2020 and 2021 to use unspent pre-termination funds through the end of the plan year in which the participant terminated. Employees can still use telehealth services without disqualifying HSA contributions Amendments to plan documents are required by December 31, 2021.
The CAA also made major changes to surprise billing and reporting requirements for health plans. Surprise billing comes from obtaining medical services in emergency rooms, hospitals or from medical groups that are not covered by an individual’s health insurance, which is unknown to them at the time the medical care is rendered. The law attempts to solve surprise billing starting on 01/01/2021 by prohibiting it in certain circumstances and limiting amounts paid in other circumstances. Guidance is needed in this area. Starting in 2022, employer group plans will need to disclose lots of information about cost-sharing and will have to report to the federal government extensive demographic information, pharmacy costs, and other claims data. For mental health and substance abuse, plans will need to perform annual compliance tests for mental health parity.
Further, the New Mexico Office of Superintendent of Insurance has issued various guidance documents relating to the COVID-19 pandemic. A continually-updated collection of these documents can be found here.
Also important are the requirements of HIPAA when an employer finds that an employee has been diagnosed with COVID-19. Kevin Pierce is ready to answer HIPAA questions and Karen Kahn can help with health plan and cafeteria plan questions.
8. How does COVID-19 affect employers?
The DOL is requiring employers to post a notice of the Families First Coronavirus Response Act (FFCRA). The FFCRA became effective on April 1, 2020. The current poster applicable to non-federal employees (last updated March 26, 2020) can be found here. The DOL has provided additional information regarding the FFCRA and related posters on the DOL website here.
Employers are required to inform employees of the rights afforded by the FFCRA. The DOL counsels that an employer may satisfy this requirement by emailing or direct mailing this notice to employees, or posting this notice on an employee information internal or external website.
As businesses reopen, they should review the guidelines from the CDC, available here and here, and the State of New Mexico, available here. Note that businesses that are currently open must follow many requirements in the Governor’s Orders, including the number of people that can be in their business and other requirements.
Attorneys in our Employment Group can help with these kinds of issues.
9. How has COVID-19 impacted real estate leases?
Both residential and commercial leases are impacted by the COVID-19 shutdown.
For commercial leases, look first to the language of the lease. Many tenants have stopped paying rent during the shutdown and both landlords and tenants are looking at their leases. The result of that analysis is in part dependent upon the language of the leases. However, many leases do not address a virus in a clear way. Additionally, tenants who were recipients of PPP loans may be required to pay rent under certain terms of that loan. Other loans may not have a similar requirement. Landlords should be clear about following the notice provisions of the default clauses in their leases and tenants would be well advised to get in touch with their landlords directly. Any written communication by either the landlord or tenant should be reviewed by your attorney. Meg Meister, Roberta Ramo and Robin James are working in this area.
For residential leases, the following information may be helpful:
The CARES Act contained a 120-day “moratorium” on landlords evicting tenants or imposing fees/fines due to a tenant failing to pay rent. This moratorium expired on July 24, 2020, but the Coronavirus Response and Relief Supplemental Appropriations Act extended the moratorium through January 31, 2021. This eviction moratorium applies to “covered dwellings” and “covered properties”, which include any property that participates in a covered housing program including such as (among other programs) the Low Income Housing Tax Credit program (26 U.S.C. § 42) and programs pursuant to which the landlord’s mortgage is a HUD, VA, USDA or Fannie Mae or Freddie Mac loan.
Additionally, the Consolidated Appropriations Act allocated $25 billion to provide financial assistance to renters who are unable to pay their living expenses. To qualify, a household must show:
- The aggregate income of all members of the household does not exceed 80% of the Area Median Income established by the Department of Housing and Urban Development;
- One or more members of the household can demonstrate a risk of experiencing homelessness or housing instability; and
- One or more members of the household qualifies for unemployment benefits or has experienced financial hardship due to the pandemic.
Disbursement of these funds will be overseen by state and local governments. Currently, no guidance has been released as to how New Mexico plans to distribute these funds, but we will update this page with further information as it becomes available.
In addition to the federal moratorium, relief for renters continues to be in effect at the state level. Before the enactment of the CARES Act, the New Mexico Supreme Court issued an Order staying the execution of all writs of restitution under the Owner Resident Relations Act for non-payment of rent, provided the resident “has demonstrated by a preponderance of the evidence a current inability to pay monthly rent established by the rental agreement.” The Order does not contain a termination date, and instead, “shall remain in effect until amended or withdrawn by future order of the Court.” Accordingly, the Order continues to apply. There is a list of Frequently Asked Questions on New Mexico Courts website, available here.
10. What about creditors’ rights issues?
In addition to leases, COVID-19 has had a dramatic effect on loan repayments. Businesses that extend credit are being requested to forbear collection and the CARES Act has expanded certain bankruptcy relief. Moreover, the dramatic oil price reduction has hurt businesses and individuals within, and dependent on, the oil and gas industry for revenue. Creditors should understand their rights and the rights of their borrowers, including the revisions to the Bankruptcy Code under the CARES Act.
On Friday, June 5, 2020, the New Mexico Supreme Court handed down an order, available here, suspending any issuance of new writs of garnishment and writs of execution in consumer debt cases. Previously-issued writs and domestic support obligations are unaffected.
11. Is it possible to execute new Estate Planning Documents during the shutdown?
Yes. In New Mexico, documents that only need to be witnessed by a notary may be notarized by video (i.e. Zoom or FaceTime), if certain requirements are satisfied. Initially, the notary by video was allowed until June 20, 2020 but that time limit has since been extended until rescinded by Governor Lujan-Grisham under Executive Order 2020-039.
Most states have enacted some form of remote notarization. However, state laws and guidance are evolving quickly during the ongoing pandemic, so it is a good idea to check the laws of the state where you are notarizing the documents. A helpful resource that summarizes approaches from different states is available here.
Additionally, and especially important now, is letting someone in your family know where your original wills, trusts, durable powers of attorney and health care directives are kept. If you have questions about creating or updating your estate planning documents, the attorneys in our Trusts and Estates Group can help.
12. What employment issues exist in the context of reopening?
The Department of Labor and the Equal Employment Opportunity Commission have issued guidance—available here—to help employers apply sick leave and the expanded Family Medical Leave Act and to avoid claims for discrimination, retaliation, and harassment in the workplace based on COVID-19. The Guidance covers matters such as the ability for employers to take the temperatures of employees entering the workplace, limitations on disclosing the identity of a COVID‑19 positive employee, and the duty to accommodate an employee’s request for accommodation based on a fear of contracting COVID‑19.
Modrall Sperling’s Employment Group is ready to navigate employers through these and other potential areas of exposure. These guidelines continue to change and you should consult with your attorney before you take action.
13. Risk management and related litigation.
The Long Term Care and Healthcare industries are facing regulatory and personal injury claims related to COVID-19. Our attorneys have handled regulatory and litigation matters for our clients in the Long Term Care and Healthcare industries, such as skilled nursing facilities and assisted living facilities, and hospitals, including regulatory proceedings, trials and appeals, and they are well-versed in recent COVID-19 developments. Should you be threatened with COVID-19 related litigation or regulatory enforcement matters, attorneys, Michelle A. Hernandez, Tomas J. Garcia, Tim L. Fields, Martha Brown, Susan Bisong and Jeremy Harrison can help you.
The most important advice of all: Stay safe, practice social distancing, wash your hands, wear your masks and know that we all care about our whole community and are here now and in what we know will be a robust recovery for New Mexico.