On May 6, 2020 the Internal Revenue Service (IRS) updated its Economic Impact Payment Information Center to include new questions and answers related to Economic Impact Payments (EIP) issued to deceased individuals. 

IRS Question 10 asks whether someone who has died qualifies for an EIP. The answer states the following: 

“No. A Payment made to someone who died before receipt of the Payment should be returned to the IRS by following the instructions in the Q&A about repayments. Return the entire Payment unless the Payment was made to joint filers and one spouse had not died before receipt of the Payment, in which case, you only need to return the portion of the Payment made on account of the decedent. This amount will be $1,200 unless adjusted gross income exceeded $150,000.” 

The instructions for returning an EIP provide the following: 

  • If the payment was a paper check: 
  1. Write "Void" in the endorsement section on the back of the check. 
  2. Mail the voided Treasury check immediately to the appropriate IRS location. 
  3. Don't staple, bend, or paper clip the check. 
  4. Include a note stating the reason for returning the check. 
  • If the payment was a paper check and you have cashed it, or if the payment was a direct deposit: 
  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location. 
  2. Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number, or individual taxpayer identification number) of the recipient of the check. 
  3. Include a brief explanation of the reason for returning the EIP. 

The IRS has provided a list of appropriate addresses on its website which can be found in the link at the end of this article. 

Considerations for Banks 

The information provided by IRS answers the question as to how EIPs made to decedent should be handled, making it clear that they are to be returned. This is true for EIPs made both by check and direct deposit. An individual who receives an EIP payable to a decedent, or who is in possession of EIP funds paid to a decedent, must return those funds. 

Unfortunately, because this information was not issued until after many payments had already been made, it means that some banks have likely already accepted payments made to a decedent. While the information provided by the IRS instructs the recipient to return the EIP funds, banks should consider how they use this information. Certainly, if a customer receives a direct deposit on behalf of a decedent, or presents a check payable to a decedent, that customer should be directed to the instructions for returning the payment. For customers who have already received the funds, either by direct deposit or by depositing a check, those funds still need to be returned pursuant to the instructions. 

The IRS instructions also provide how the recipient is to determine the amount that must be returned. Banks are reminded that the appropriate amount that is to be returned is a consideration that should be made by the customer, not the bank. The instructions relate to the recipient and furthermore, banks are not in a position to know the customers adjusted gross income to make the determination on a customer’s behalf. 

Conclusion 

IRS has made it clear that decedents are not eligible for EIP funds, and individuals who have received payments made to decedents are to return those funds. At this time, IRS has not indicated any steps beyond the requirements above. For example, there is no current indication of a reclamation process beyond a requirement for recipients to return the payments themselves. 

Click here for the IRS FAQ.

By, Amber Seitz

Treasury and the Small Business Administration continue to define and finalize the rules for Paycheck Protection Program loan forgiveness which makes loan forgiveness a moving target. Small businesses need to understand the amount of forgiveness that will be applied to their loans under the current rules. Using a free loan forgiveness guide and calculator developed by the Wisconsin Bankers Association and its subsidiary, FIPCO, borrowers can begin to understand the potential amount of PPP loan forgiveness.   

The free WBA guide in pdf form is downloadable at https://www.wisbank.com/articles/2020/04/wba-ppp-loan-forgiveness-guide

The free WBA/FIPCO calculator in pdf form is downloadable at https://www.wisbank.com/articles/2020/04/wba-fipco-ppp-borrower-forgiveness-calculator

“Lenders and borrowers alike want more guidance on PPP loan forgiveness because the decisions they are making now will affect their businesses for the next two years,” said Rose Oswald Poels, WBA president/CEO. “Our free loan forgiveness guide and calculator are the tools needed to help provide some clarity.” 

“There were expectations and assumptions by borrowers and lenders alike when PPP was first launched which may have changed,” explained Oswald Poels. “One great example would be originally it was expected that funds would be disbursed as needed. Since then, it’s been clarified that the funds need to be disbursed within 10 days of the loan. That makes a huge difference from both the borrower and the lender viewpoint.” 

Forgiveness isn’t automatic. It is the borrower’s responsibility to follow the criteria of the loan to ensure forgiveness.   

“Borrowers really need to be aware they need to track and document the use of the PPP funds,” said Oswald Poels. “Bankers want these loans to be forgiven, but whether that happens rests squarely on the shoulders of the borrower.” 

“Timelines and payroll calculations will play a role in the level of loan forgiveness,” explained Oswald Poels. “We suggest borrowers work with their bankers and use this guide and the calculator to help stay within the requirements of the program.”    

Here are the top items PPP recipients should keep in mind.  

  • Track your use of the PPP loan funds.   
  • Document and report on your fund use when applying for loan forgiveness.  
  • At least 75% of PPP funds must be used for payroll costs.  
  • 8 weeks after you have received your PPP loan funds, you can submit a forgiveness request to the lender servicing the loan.  
  • Stay in regular contact with your banker.  

Reminder: 

The free WBA guide in pdf form is downloadable at https://www.wisbank.com/articles/2020/04/wba-ppp-loan-forgiveness-guide

The free WBA/FIPCO calculator in pdf form is downloadable at https://www.wisbank.com/articles/2020/04/wba-fipco-ppp-borrower-forgiveness-calculator

By, Eric Skrum

Click here to jump to the WBA policy for bank use

On April 17, 2020, the federal banking agencies published an interim final rule to allow for the deferral of certain appraisals and evaluations for up to 120 days after closing of residential or commercial real estate loan transactions. Transactions involving acquisition, development, and construction of real estate are excluded from the interim rule. The temporary provisions are set to expire Dec. 31, 2020, unless extended by the federal banking agencies. 

Under the interim final rule, regulated institutions that defer receipt of an appraisal or evaluation are still expected to conduct lending activity consistent with the underwriting principles in the agencies' Standards for Safety and Soundness and Real Estate Lending Standards that focus on the ability of a borrower to repay a loan and other relevant laws and regulations.

By the end of the deferral period, regulated institutions must obtain appraisals or evaluations that are consistent with safe and sound banking practices, as required by the agencies' appraisal regulations.

WBA has prepared a policy for use by financial institutions to aid them in complying with the requirements of federal regulators to still conduct lending activity consistent with the agencies' underwriting principles despite deferral of receipt of an appraisal or evaluation. The policy is designed to be used as part of your institution's broader Standards for Safety and Soundness, Real Estate Lending Standards, or Appraisal policy. The policy also contains numerous resources, including investors' temporary appraisal guidelines and requirements. 

This policy is current as of May 5, 2020.

By, Amber Seitz

Late last week, the IRS issued Notice 2020-32 related to the deductibility for Federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a covered loan pursuant to the Paycheck Protection Program under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)). This Notice can be found here.

Specifically, this Notice clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the CARES Act, and the income associated with the forgiveness is excluded from gross income for the purposes of the Code pursuant to section 1106(i) of the CARES Act. The IRS said that to the extent the income resulting from loan forgiveness under the PPP is excluded from income, it’s considered a “class of exempt income” under regulations promulgated under section 265. The IRS believes this treatment of not allowing the deduction of these covered expenses is appropriate because it prevents a double tax benefit.

It is possible this IRS guidance will be reversed by Congress as the heads of congressional tax committees want expenses funded with small business loans to be deductible. Given this evolving situation, bankers are reminded to be careful about providing tax information regarding any aspect of the PPP loans, and encourage borrowers to consult with their tax advisor regarding any tax implications of a PPP loan.

By, Ally Bates

Crises often bring out the best in people, and the current COVID-19 pandemic is no exception. It is remarkable to see all the tireless effort taking place in all aspects of our world to provide care for the sick; to research, and develop new test kits and potential vaccines at lightning fast speed to help stem the spread of the COVID-19 virus; to make more PPE for all front-line workers; and to stabilize the financial impact caused by safer-at-home orders and other physical distancing requirements. 

As your association, WBA has worked right alongside you during this crisis to provide timely and accurate information and guidance, education, advocacy, forms, and other services to help you navigate through the evolving legislation and program changes. Banks were forced to manage this crisis both in terms of prioritizing their own staff needs and organizing teams of staff to alternate working in the office, and also responding to customer needs that became critical overnight when the governor first issued his safer-at-home order.

The banking industry has, not surprisingly, stepped up to help individual and business customers on the economic frontline of this crisis. Bankers proactively reached out to customers to offer assistance and developed programs to help relieve the financial stress by offering to temporarily adjust loan payments to interest-only or, in many cases, provide 60-90 day deferrals; waived fees; and created special new loan programs to help manage through the loss of income.

As government programs began rolling out, most notably the Paycheck Protection Act (PPP), bankers worked literally 24/7, every day of the week, responding to the flood of inquiries and applications from customers and non-customers alike. Given the fact that the program had a specific initial allocation of $349 billion, Wisconsin bankers worked long hours during the week and over weekends to take, underwrite, and process PPP applications to ensure their customers were in the queue and approved before the money ran out. Indeed, these funds were exhausted in the early morning of Thursday, April 16; however, it is anticipated that Congress will act to appropriate additional monies to the program. As of April 16, Wisconsin businesses received over 43,000 loans totaling over $8.3 billion in PPP funds.

Early on, WBA created a COVID-19 landing page for members to check daily for updates on state and federal issues, orders, and new laws and rules. This provided members with a single resource they could rely on for original content as well as links to other critical guidance that staff updated as quickly as information was released. WBA also began twice-per-day emails to members purely due to the rapidly changing environment we were living through to help customers. WBA staff were quickly recognized as experts on these programs and invited to speak for several other outside groups on behalf of the industry to educate their constituent members about the various financing options available for businesses struggling due to COVID-19.

Answering members' questions and providing ongoing education in this fluid environment also were critical priorities in tandem with the information being shared daily. WBA provided five free educational webinars on COVID-19 topics ranging from business continuity to employment law issues to understanding the CARES Act, primarily PPP. Member questions were handled by several staff and, at our peak, we estimate that key staff received over 300 emails daily with questions around the CARES Act and PPP, and our response time was, in nearly all cases, within the hour or two of first receiving the question. 

FIPCO's Loan Processing Central services and ShareFI consulting and agent services were quickly ramped up to help bankers manage the volume of mortgage and PPP loan doc prep work that needed to be done with limited bank staff and provide extra staffing to manage the pipeline of businesses with PPP questions and applications. In addition, several WBA forms, notable deferral agreements, were updated and made available to banks across the Midwest.

In the broadest sense of the word, WBA's advocacy for the banking industry and for its customers during this time was second to none. WBA proactively issued press releases and statements to the media to help educate the public on all the positive work the banking industry was doing to help people and businesses financially through this crisis. In addition, WBA reacted to many local, state, and national media inquiries providing substantive content and support for all the active involvement of bankers on the economic frontlines of the crisis. WBA worked to ensure accurate information about the various government programs and stimulus was provided to the public through these various news sources.

In addition, WBA was directly involved in many conversations with key elected officials at the state and national level to ensure the industry's needs were represented and heard. WBA communicated with each congressional office several times each week by email and phone to raise issues that needed clarification and to seek support for changes to the laws, rules, and program guidance. WBA is continuing those efforts on behalf of the industry nationally to not only advocate for Congress to appropriate more money to the PPP program so that more businesses can be helped, but also to work with key officials in the Governor's Administration to develop a plan to re-open our state's economy.

Providing value to the membership every day has been part of WBA's mission for years, so it was very easy to re-focus our priorities to helping members through this unprecedented crisis. The entire WBA team could not be more proud to represent an industry so vital to the state's economy. This crisis highlights the critical leadership role the banking industry plays in helping customers through very difficult financial times while bankers, as individuals, navigate these same uncertainties in their own personal lives. Thank you for all you are doing to help steer the economic ship through these uncharted waters!

Oswald Poels is president and CEO of the Wisconsin Bankers Association.

By, Amber Seitz

Statement on Evers’ consideration of aid payments for Wisconsin agriculture industry by Rose Oswald Poels, president and CEO, Wisconsin Bankers Association 
Federal funds could provide much-needed aid to WI farmers 

“All industries are feeling the impact of the current pandemic, but one of the hardest-hit is also a bedrock of Wisconsin: agriculture. With many already struggling due to weather, trade, and pricing challenges, the coronavirus could be the final blow that causes many of Wisconsin’s family farms to close. Many of our association’s ag bankers are working tirelessly with their customers to help them during this time, but more is needed.  

That is why I am pleased to hear Governor Evers is strongly considering allocating some of the federal funds Wisconsin has received for combatting the pandemic as aid payments to help our state’s food producers weather this storm. I urge him to act quickly to help shore up Wisconsin’s agriculture industry so our state can continue to be a global leader in this sector.” 

By, Amber Seitz