Financial News General

Student Loan Forgiveness Plan

On Aug. 24, President Biden announced a plan for student loan debt relief. The three-part plan may affect nearly 8 million borrowers.

Part one will allow $20,000 of debt forgiveness for taxpayers who went to college on a Pell Grant or $10,000 without a Pell Grant. This applies only to taxpayers earning below $125,000 a year ($250,000 for married couples). The plan doesn’t specify how earnings are calculated or to which tax year they apply.

Part two is an extension of the pause on student loan repayment until Dec. 31, 2022.

Part three modifies the income-based repayment plan rules. Pell Grant recipients with undergraduate degrees will have their repayments capped at 5% of monthly income.

Contact one of our experts if you have any questions.

Financial News


President Biden signed the Inflation Reduction Act into law at a White House ceremony on August 16, finalizing a legislation intended to address inflation by paying down the national debt, lower consumer energy costs, provide incentives for the production of clean energy, and reduce healthcare costs.

The bill moved through the legislative process in near-record time, having been first introduced by Sens. Chuck Schumer (D-NY) and Joe Manchin (D-WV) on July 27.  With the 50-50 Senate, summer recess, and approaching mid-term elections, the path to passage by both houses of Congress was not a certainty.

The act is expected to raise roughly $450 billion through new tax provisions, including a 15% minimum book tax on certain large corporations, a 1% excise tax on corporate stock buybacks, and a two-year extension of the section 461(l) loss limitation rules for noncorporate taxpayers, which is now set to expire for tax years beginning after 2028. The act also boosts funding for the IRS, intended to result in increased tax collections over the next 10 years.

The act includes the largest-ever U.S. investment committed to combat climate change, allocating $369 billion to energy security and clean energy programs over the next 10 years, including provisions incentivizing manufacturing of clean energy equipment and electric vehicles domestically.

Overall, the act modifies many of the current energy-related tax credits and introduces significant new credits and structures intended to facilitate long-term investment in the renewables industry.

Financial News

Keeping meticulous records is the key to tax deductions and painless IRS audits

If you operate a business, or you’re starting a new one, you know you need to keep records of your income and expenses. Specifically, you should carefully record your expenses in order to claim all of the tax deductions to which you’re entitled. And you want to make sure you can defend the amounts reported on your tax returns in case you’re ever audited by the IRS.

Be aware that there’s no one way to keep business records. But there are strict rules when it comes to keeping records and proving expenses are legitimate for tax purposes. Certain types of expenses, such as automobile, travel, meals and home office costs, require special attention because they’re subject to special recordkeeping requirements or limitations.

Here are two recent court cases to illustrate some of the issues. Case 1: To claim deductions, an activity must be engaged in for profit

A business expense can be deducted if a taxpayer can establish that the primary objective of the activity is making a profit. The expense must also be substantiated and be an ordinary and necessary business expense.

In one case, a taxpayer claimed deductions that created a loss, which she used to shelter other income from tax. She engaged in various activities including acting in the entertainment industry and selling jewelry. The IRS found her activities weren’t engaged in for profit and it disallowed her deductions. The taxpayer took her case to the U.S. Tax Court, where she found some success. The court found that she was engaged in the business of acting during the years in issue.

However, she didn’t prove that all claimed expenses were ordinary and necessary business expenses. The court did allow deductions for expenses including headshots, casting agency fees, lessons to enhance the taxpayer’s acting skills and part of the compensation for a personal assistant. But the court disallowed other deductions because it found insufficient evidence “to firmly establish a connection” between the expenses and the business. In addition, the court found that the taxpayer didn’t prove that she engaged in her jewelry sales activity for profit. She didn’t operate it in a businesslike manner, spend sufficient time on it or seek out expertise in the jewelry industry. Therefore, all deductions related to that activity were disallowed. (TC Memo 2021-107)

Case 2: A business must substantiate claimed deductions with records A taxpayer worked as a contract emergency room doctor at a medical center. He also started a business to provide emergency room physicians overseas. On Schedule C of his tax return, he deducted expenses related to his home office, travel, driving, continuing education, cost of goods sold and interest. The IRS disallowed most of the deductions.

As evidence in Tax Court, the doctor showed charts listing his expenses but didn’t provide receipts or other substantiation showing the expenses were actually paid. He also failed to account for the portion of expenses attributable to personal activity. The court disallowed the deductions stating that his charts weren’t enough and didn’t substantiate that the expenses were ordinary and necessary in his business. It noted that “even an otherwise deductible expense may be denied without sufficient substantiation.” The doctor also didn’t qualify to take home office deductions because he didn’t prove it was his principal place of business. (TC Memo 2022-1)

We can help

Contact us if you need assistance retaining adequate business records. Taking a meticulous, proactive approach can protect your deductions and help make an audit much less difficult. © 2022

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Keep Your Customers Satisfied

Over the past few years, community banking has withstood rapid technological changes, unprecedented economic challenges during a pandemic and new demands from its customer base. To maintain profitability amidst all this turmoil, you need to ensure that your bank retains its existing customers. After all, studies show that attracting a new customer typically costs five times more than retaining an existing one.

Here are three fundamental questions to help improve customer satisfaction and, ultimately, retention.

  1. What’s your core deposit base?

A good first step is to identify your core deposits and develop an understanding of customer behaviors. Differentiate loyal, long-term customers from those motivated primarily by interest rates. A core deposit study can help you distinguish between the two types of depositors and predict the impact of fluctuating interest rates on customer retention. Banking regulators strongly encourage banks to conduct these studies as part of their overall asset-liability management efforts.

Core deposit studies assess how much of your bank’s deposit base is interest-rate-sensitive by examining past depositor behavior. They also look at factors that tend to predict depositor longevity. For example, customers may be less likely to switch banks if they have higher average deposit balances and use multiple banking products (such as checking and savings accounts, mortgages and auto loans).

  1. How can you get to know your customers better?

To build customer loyalty, it’s critical to ensure that customers are engaged. According to research by Gallup, engaged customers are more loyal, and they’re more likely to recommend the bank to family and friends. They also represent a bigger “share of wallet” (that is, the percentage of a customer’s banking business captured by the bank).

Recent retail banking studies show that fewer than half of customers at community banks and small regional banks (less than $40 billion in deposits) are actively engaged. The percentages are even smaller at large regional banks (over $90 billion in deposits) and nationwide banks (over $500 billion in deposits). That’s the good news. The bad news is that 50% of customers at online-only banks are fully engaged.

So, how can community banks do a better job of engaging their customers to compete with online banks? The answer lies in leveraging their “local touch” by knowing their customers, delivering superior service, and providing customized solutions and advice. To do that, banks must ensure that their front-line employees — tellers, loan officers, branch managers and call center representatives — are fully engaged in their jobs.

Encouraging employees to engage with customers has little to do with competitive salaries and benefits. Rather, it means providing employees with opportunities for challenging work, responsibility, recognition and personal growth.

  1. How can you develop your online presence?

An increasing number of customers — younger people in particular — use multiple channels and devices to interact with their banks. These include online banking, mobile banking applications and two-way texting.

To build loyalty, banks should enable customers to use their preferred channels and ensure that their experiences across channels are seamless. And don’t overlook the importance of social media platforms. Younger customers are more likely to use these platforms to recommend your bank to their friends and families.

Ask the right questions

Your customer retention strategies shouldn’t be based on guesswork. Consider periodically engaging with customers concerning their level of satisfaction with your current systems and processes. Ask what they’d like to see improved. A brief survey, or even a short conversation, can provide valuable input on ways to keep your customers satisfied with your bank’s services over the long term.


Financial Institutions and Banking Financial News

Is Your Bank in Compliance?

The Dodd-Frank Act gives the Consumer Financial Protection Bureau (CFPB) broad authority to prosecute unfair, deceptive or abusive acts or practices (UDAAP) by banks and other financial providers. Early last year, the CFPB announced a new policy that gave institutions a reprieve from UDAAP enforcement actions. But in March 2021, it rescinded this policy, signaling a return to more aggressive enforcement.

UDAAP refresher

During the COVID-19 pandemic, many banks have changed the way they do business — for example, by reducing lobby hours, closing branches, and relying more on mobile banking apps and online transactions — and many of these changes may be here to stay. So, given the CFPB’s more aggressive enforcement stance, it’s a good idea for banks to review their UDAAP compliance policies and update them to reflect current business practices.

One reason UDAAP might be problematic is that its restrictions are quite broad and, in some cases, vague. Generally, an act or practice is unfair if it causes, or is likely to cause, substantial injury to consumers and such injury isn’t reasonably avoidable. Deceptive acts or practices are those that mislead or are likely to mislead consumers, provided the consumer’s interpretation is reasonable under the circumstances and the act or practice is material.

An act or practice is abusive if it materially interferes with a consumer’s ability to understand a product or service’s terms or conditions. Alternatively, abusive acts or practices may take unreasonable advantage of consumers’ 1) lack of understanding, 2) inability to protect their interests, or 3) reasonable reliance on banks to act in their interests.

CFPB guidance provides a nonexhaustive list of examples of conduct that may, depending on the facts and circumstances, constitute UDAAPs. They include:

  • Collecting or assessing a debt or additional amounts in connection with a debt (for example, interest, fees or charges) not expressly authorized by the agreement or permitted by law,
  • Failing to credit a consumer’s account with timely submitted payments and then imposing late fees,
  • Taking possession of property without the legal right to do so,
  • Revealing the consumer’s debt, without consent, to the consumer’s employer or coworkers,
  • Falsely representing the character, amount or legal status of the debt, and
  • Threatening any action that isn’t intended or authorized, including false threats of lawsuits, arrest, prosecution or imprisonment for nonpayment of debt.

Certain misrepresentations also may qualify as UDAAPs. For instance, a bank can’t falsely claim that a debt collection communication is from an attorney or government-affilitated source. Banks also can’t lie about whether information about a payment or nonpayment would be furnished to a credit reporting agency — or falsely promise to waive or forgive debts if consumers accept a settlement offer.

COVID-related updates

The COVID-19 pandemic has caused most businesses, including banks, to change the way they do things — so now’s a good time for a review. For example, have you permitted borrowers to skip loan payments under certain circumstances? Will that policy continue even after the pandemic ends? If so, you need to ensure that your policy is designed and communicated in a manner that isn’t unfair, deceptive or abusive to your customers.

During the pandemic, many banks have relied more heavily on electronic transactions in light of social distancing guidelines, a practice that may continue post-pandemic. If your bank permits customers to receive disclosures and other documents electronically, be sure that your policies and practices are fair, clearly communicated and don’t negatively impact customers without access to the necessary technology.

Even physical access and security practices may raise UDAAP concerns. For example, could reducing branch hours be perceived as unfair or abusive to specific customers? And what about masks or other face coverings? Ordinarily, banks prohibit them. But by necessity, exceptions have been made pursuant to mask mandates during the pandemic. In the absence of a mandate, what will your bank’s policy be going forward? Will you require customers to remove their masks, even if they’re at higher risk or simply feel more comfortable wearing one? Whatever your policy, it should be carefully designed and communicated to avoid UDAAP issues.

Training is key

Any time a bank changes its business practices or establishes new ones, it’s important to evaluate whether those changes raise UDAAP concerns. Even if your policies are fair on paper, they can still trigger UDAAP liability if they’re not put into practice properly. So be sure that bank staff or other representatives are adequately trained.

To ensure that your bank is still compliant after all of the recent changes, contact one of our financial institution experts today.


CFPB renews focus on UDAAP enforcement

In January 2020, the Consumer Financial Protection Bureau (CFPB) issued a policy statement providing some relief to banks for unfair, deceptive, or abusive acts or practices (UDAAP). Pursuant to the statement, the CFPB said it wouldn’t challenge conduct as abusive unless the harm to consumers outweighed the benefits. It also pledged to end “dual pleading” — that is, charging a bank with both abusiveness and unfairness or deception based on the same conduct — and to refrain from seeking monetary relief when a bank made a good-faith effort to comply with the law.

In March 2021, the CFPB rescinded the policy statement, finding it inconsistent with the CFPB’s mission. Going forward, it will exercise the “full scope” of its enforcement authority, although it will consider good faith and other relevant factors in using its prosecutorial discretion.


Financial News

Restaurant Revitalization Fund | What’s in It for Restaurants

By BDO Alliance | Alicia Huffman, Ron Reed Jr, Adam Berebitsky

The American Rescue Plan Act of 2021, the $1.9 trillion COVID relief package signed into law by President Joe Biden on March 11, 2021, establishes the Restaurant Revitalization Fund (RRF) and provides for several additional benefits for restaurants listed below.

The RRF, which will be administered by the Small Business Administration (SBA), is broadly applicable and is intended to provide relief to various types of food establishments (we use the general term “restaurants” to refer to these businesses).

The RRF will provide $28.6 billion in relief grants to small to midsized restaurants that have been struggling as a result of the COVID-19 pandemic. Of the total $28.6 billion, $23.6 billion is available for the SBA to award in an equitable manner to different-sized businesses based on annual gross receipts. The remaining $5 billion is available to businesses with gross receipts of $500,000 or less during 2019.

Eligible restaurants may receive a tax-free federal grant equal to the amount of its pandemic-related revenue loss (reduced by any amounts received from PPP first and second draw loans in 2020 and 2021). The grant amount is capped at $10 million per business with a $5 million limit per physical location and may be used to cover eligible expenses retroactively to February 15, 2020.

Estimated Timeline

Although details of the application release date are presently unknown, the National Restaurant Association shared an expected timeline on their March 15, 2021 webinar regarding the RRF:

  • April 2021 – SBA releases rules and applications
  • May/June – 21-day priority period for women-, veteran-, and disadvantaged/minority-owned businesses
  • May/June – RRF open for all eligible restaurants

If the RRF funds have not been exhausted after 60 days, the SBA will have discretion to administer grants to eligible businesses without regard to annual gross receipts.

Are You Eligible?

To be eligible, the applicant must not own or operate more than 20 locations in total as of March 13, 2020, including any affiliated business, regardless of ownership type of the locations and whether those locations do business under the same or multiple names. By definition, an affiliated business is one that has a right to a profit distribution or an equity interest of 50% or more, or contractual authority to control the direction of the business in existence as of March 13, 2020.

Eligible entities are restaurants; food stands; food trucks; food carts; caterers; saloons; inns; taverns; bars; lounges; brewpubs; tasting rooms; taprooms; licensed facilities or premises of a beverage alcohol producer where the public may taste, sample or purchase products; or other similar places of business where patrons go for the primary purpose of being served food or drink.

Publicly traded companies, state or local government-operated businesses, entities that have more than 20 locations (as described above) and restaurants that have a pending application for, or that have received a grant under the shuttered venue operator grant program are not eligible for the RRF grant.

Grant Calculation

An eligible business can receive a grant equal to its pandemic-related revenue loss. The pandemic-related revenue loss is the difference between the business’s 2020 gross receipts and its 2019 gross receipts, reduced by any amounts received from PPP loans.

Eligible businesses that began operations in 2019 will need to annualize their average monthly gross receipts for 2019 and compare them to their annualized monthly gross receipts for 2020.

Eligible businesses that began operations in 2020 will calculate their grant amount by taking the difference between qualified grant expenses and their 2020 gross receipts.

If an eligible business is not yet in operation as of the application date but has incurred eligible expenses, then its grant will be equal to those expenses.

Eligible Expenses

A qualifying RRF grant recipient may use the funds for specified expenses, including:

  • Payroll (not including wages used for the Employee Retention Credit (ERC))
  • Principal or interest on mortgage obligations
  • Rent
  • Utilities
  • Maintenance, including construction to accommodate outdoor seating
  • Personal protective equipment, supplies and cleaning materials
  • Normal food and beverage inventory
  • Certain covered supplier costs
  • Covered operational expenses
  • Paid sick leave
  • Any other expenses the SBA determines to be essential to maintaining operations incurred from February 15, 2020 to December 31, 2021 are eligible

Additional Benefits to the Restaurant Industry in the American Rescue Plan

  • The ERC has been extended through December 2021.
  • The ERC has also been extended to new businesses that started after February 15, 2020 with average annual receipts of under $1 million. For these businesses, the credit cannot exceed $50,000 per quarter.
  • The Families First Coronavirus Response Act Paid Sick and Family Leave tax credit is extended beginning April 2021 through September 30, 2021.

Contact your ATA representative to discuss this assistance relief further. Visit SBA’s website for more information on the Restaurant Revitalization Fund.

This article originally appeared in BDO USA, LLP’s “Selection” blog (Spring 2021). Copyright © 2021 BDO USA, LLP. All rights reserved.

Financial News

Paycheck Protection Program (PPP) Extension Act of 2021

President Biden has signed the Paycheck Protection Program Extension Act of 2021, which extends the covered period for the PPP. Before the law was passed, the loan application deadline was set to expire on March 31, 2021.

The new law extends the deadline to May 31, 2021. In addition, the Small Business Administration (SBA) is given until June 30, 2021 to process loan applications submitted before June 1. The PPP permits the SBA to provide loans to qualified businesses affected by the pandemic. The loans must be used for payroll and certain other costs. Visit SBA’s website for more information. 

Contact us if you have questions about forgivable PPP loans or if you would like to apply for one so you can retain employees at your business. 

Financial News

IRS Extends Health, Retirement Contribution Deadline to May 17

The big news recently was an extension of the income tax filing and payment deadline for individuals from April 15 to May 17, 2021. But the IRS just announced the deadline is also extended to May 17 for tasks including:

1) making contributions to IRAs and Roth IRAs and

2) reporting and paying the 10% additional tax on 2020 distributions from IRAs or employer-based retirement plans.

However, the deadline for filing Form 5498, “IRA Contribution Information” series returns, is extended to June 30, 2021. The deadline also is extended to May 17 for making contributions to Health Savings Accounts, Archer Medical Savings Accounts and Coverdell education savings accounts. (Notice 2021-21)

Visit the IRS website for the official release. Contact your ATA representative if you have further questions about making contributions.


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PPP Flexibility Update

PPP Flexibility Update

The PPP Flexibility Act recently passed the House and Senate and has been signed by the President.  This bill allows greater latitude for Paycheck Protection Program borrowers. This means PPP loan recipients are granted more time and greater flexibility to utilize their funds while remaining eligible for loan forgiveness.

‌Key Updates

Current PPP borrowers can choose to extend the eight-week period to utilize the funds to twenty-four weeks, or they can keep the original eight-week timeframe. 

New PPP borrowers will have a 24-week covered period, but the covered period cannot extend beyond December 31, 2020. This flexibility is designed to make it easier for more borrowers to maximize their loan forgiveness. Businesses now have five years to repay the loan instead of two with the same interest rate at 1%.

The maturity on previous PPP loans is not automatically extended but may be extended by mutual agreement of the lender and the borrower. 

In the previous PPP loan agreement, borrowers had to devote a minimum of 75% to payroll expenses. Under the PPP Flexibility Bill, borrowers must spend at least 60% on payroll and no more than 40% for payments of interest on covered mortgage obligations, rent and utilities.

This update includes additional exceptions which should help borrowers reach full PPP loan forgiveness:

  1. The forgiveness amount will not be reduced if an employer can document an “inability to rehire individuals who were employees of the eligible recipient on February 15, 2020”; and, “an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020”.
  2. The borrower is able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements related to Covid-19 related operating restrictions.

We continue to monitor the details and guidelines as they unfold, contact your CPA for answers. Please visit our COVID-19 resource page for more information or visit Paycheck Protection Flexibility Act for more information.

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PPP Data Collection Spreadsheet

*As of 4-28-20

View this updated PPP loan forgiveness workbook that can benefit your business. Consider gathering as much information as possible now by using the PPP loan forgiveness data collection form. Click here to download the spreadsheet.