Ohio Court Sides with Restaurant Group in Business Interruption Insurance Lawsuit
Feb 15, 2021
The U.S. District Court for the Northern District of Ohio recently ruled in the case of Henderson Road Restaurant Systems, Inc. vs. Zurich American Insurance Company, that the restaurant group is entitled to business interruption insurance coverage due to lost sales and increasing expenditures as a result of a government-ordered shutdown. Business interruption insurance has been widely disputed during the COVID-19 pandemic as many business owners have sought compensation for losses incurred during government-imposed shutdowns and curfews. The court ruled in favor of the restaurant group claiming it had a valid claim even though a provision within the policy denied coverage for any shutdowns caused by a microorganism. The Court argued the government orders were what caused the shutdown, not the actual novel coronavirus. Thus, the microorganism provision does not prevent the repayment.
In its defense, the insurer argued the restaurant group did not satisfy the requirement within the policy stating business income loss must be tied to “a direct physical loss of or damage to”. However, the court agreed with the restaurant group noting it lost its ability to use the insured properties for their intended purpose. The judge maintained the temporary state and local closure orders led to the restaurant group to suffer a covered loss because the orders prohibited them from allowing in-person dining, which was the foundation of their business model.
The case has been certified for an immediate appeal. If the court’s decision survives the appeal, all businesses in Ohio closed due to shutdown orders may be entitled to recover some form of their losses from their insurer. Policyholders and insurers in Ohio await a resolution of these key issues and will look for clarification of the policy interpretation rules by the Sixth Circuit or the Ohio Supreme Court.
For more information on our restaurant practice and the services we offer, please connect with our practice leader below:
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Kristin Metzger, CPA
Restaurant Practice Leader
Categories: COVID-19, Restaurant & Hospitality
Small Business Audits to Increase by 50% in 2021
Jan 26, 2021
As many small businesses are already preparing for complex accounting issues as a result of COVID-19 relief funds from the 2020 CARES Act, the IRS announced their intent to increase audits by 50%.
These audits and their repercussions could be targeted at businesses that have historically been overlooked including family-owned operations, online businesses created as a result of the pandemic, and investment funds.
De Lon Harris, the IRS deputy commissioner of examination for small businesses, recently noted, “[we] are focusing our efforts to increase compliance activity in this area of not only partnerships but also investor returns related to pass-throughs.”
The IRS can audit returns up to 3 years old, and if significant problems are found, are able to look further into past filings. With new audit procedures passed by Congress in 2015, the IRS is able to collect any underpaid taxes directly from the partnership instead of tracking down each investor. The agency is placing 50 new specialized auditors on these cases beginning in February in order to meet the projected increase.
Here are a few tips to prepare you and your business for the possibility of an audit:
- Maintain clear records – Accurate and adequate documentation makes an auditor’s job easier and may reduce the chance of further inquiry.
- Make estimated tax payments – Businesses expecting to owe more than $500 should be making quarterly payments. Failure to do so can increase your chance of being audited.
- Impact of the Bipartisan Budget Act of 2015 (BBA) – Review of businesses’ formation documents, elections, and governing documents will help to determine if you will be subject to the Centralized Partnership Audit Regime and how it will impact your business.
- Enlist the experts – Seek guidance from a CPA to ensure your returns are filed timely and accurately, to help you determine if estimated payments are needed, and to resolve possible red flags due to questionable reporting.
Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.
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Juli Seiwert, CPA
Audit Senior Manager, William Vaughan Company
juli.seiwert@wvco.com | 419.891.1040
Categories: Audit & Accounting, COVID-19
SBA Unveils New PPP Forgiveness Applications & Guidance
Jan 21, 2021
On Tuesday, the U.S. Small Business Administration (SBA) and Treasury released new PPP loan forgiveness guidance along with new forgiveness applications.
These applications include:
- PPP Loan Forgiveness Application Form 3508S – this new one-page application is for borrowers who received a PPP loan of $150,000 or less. While no supporting documentation is required to be submitted with the application, borrowers are advised to maintain payroll, nonpayroll, and other documents that could be requested during an SBA loan review or audit.
- Form 3508EZ – this streamlined application is for borrowers that meet certain safe harbors
- Form 3508 – the full application is for those who don’t qualify for using either of the previous two forms
- Form 3508D – this two-page document is to be submitted by certain individuals who are required to disclose a controlling interest in an entity applying for a PPP loan
Borrowers using Forms 3508 and 3508EZ must submit payroll and nonpayroll documentation when applying for loan forgiveness. The instructions included with these forms provide lists of the required documents.
In addition to the new forms, an interim final rule (IFR) was released which simplified previous loan forgiveness rules and integrated changes made by The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (P.L. 116-260) which provided an additional $248 billion of funding to the PPP and allowed for a second-draw.
The SBA also noted it had approved roughly 60,000 PPP loan applications submitted by nearly 3,000 lenders for over $5 billion from the program’s re-opening through Jan. 17.
As always, we encourage you to connect with your William Vaughan Company advisor with questions on how this may impact your individual circumstances, or check out our COVID-19 Resource Center for additional insights.
Categories: COVID-19
Grant vs. Debt Accounting For PPP Funds
Jan 15, 2021
Over the past several weeks’ companies have started to receive notification of forgiveness of their PPP loans. As you begin to think about how you will account for your loan and forgiveness, it is important to remember proper GAAP accounting. As we noted in our prior blog, Accounting for PPP Loan Proceeds, the legal form of a PPP loan is debt. However, the PPP loan does include a forgiveness component which under certain scenarios permits treating the proceeds as a grant and following IAS 20 Accounting for Government Grants as an option. To be treated as a grant, the proceeds must be reasonably assured they will comply with the eligibility and forgiveness requirements. The biggest difference between the two options is under grant accounting, the income is recognized as the costs are incurred and for debt accounting, the gain is recognized when the entity is notified of forgiveness.
PPP loans should be derecognized when the debt is extinguished, in accordance with the guidance in ASC 405-20, Liabilities: Extinguishments of Liabilities. Under this guidance, debt is extinguished when either the debtor pays the creditor, or the debtor is legally released from being the primary obligator. As a result, when treating the PPP loan proceeds as debt you recognize the income in the year the company is notified of forgiveness. For any business with a 12/31 year-end who receive notification after such, even if the financial statements have not been issued, the gain should be recognized in 2021. If a company wants to recognize the gain during the fiscal year 2020 they should consider grant accounting.
Each borrower under the PPP program should carefully analyze its unique facts and circumstances in determining the appropriate accounting. Regardless of the accounting approach followed by a borrower they should disclose in the footnotes how the PPP loan was accounted for and where the related amounts are presented in the financial statements. Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.
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Juli Seiwert, CPA
Audit Senior Manager, William Vaughan Company
juli.seiwert@wvco.com | 419.891.1040
Categories: Audit & Accounting, COVID-19
SBA Releases New Forms In Preparation for Paycheck Protection Program Re-Opening
Jan 11, 2021
The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced the Paycheck Protection Program (PPP) will reopen today initially for community financial institutions (CFIs) that serve minority- and women-owned businesses to make loans. Specifically, CFIs can begin making loans to first-time PPP borrowers today and second-time PPP borrowers on Wednesday.
The SBA and Treasury said the PPP would open to all lenders a few days after the opening for CFIs, but they did not specify a date. Borrower loan application forms were also released:
- Form 2483 – Paycheck Protection Program Borrower Application Form and,
- Form 2483-SD – PPP Second Draw Borrower Application Form.
Form 2483 is updated from previous iterations starting with the original PPP program. Form 2483-SD is a new form for qualified PPP borrowers to seek a second draw of a forgivable loan as they try to navigate economic seas churning in the throes of the COVID-19 pandemic.
Finally, the SBA released additional guidance outlining top-line summaries of the first-draw and second-draw PPP loans and a pair of procedural notices.
- Top-Line Overview of First Draw PPP Loans
- Top-Line Overview of Second Draw PPP Loans
- Procedural Notice – Modifications to SBA Forms 3506, 3507 and 750 CA (PPP only)
- Procedural Notice – SBA Procedural Notice on Repeal of EIDL Advance Deduction Requirement
For more information regarding the PPP and second-draw loans under the Consolidated Appropriates Act, 2021, check out our latest webinar here or review our PPP Application Guide here. As always, connect with your William Vaughan Company advisor for questions or concerns.
Categories: COVID-19