Aaron F. W. Meek
Rison, Meek & O’Shields, PLLC
John R. Arrowood
Elias, Books, Brown & Nelson, P.C.
First, I would like to thank and credit Jerrod Hardegree for his significant contribution to this article and his leadership.
We have attempted to create a summary below of many of the main programs and benefits that may be available to assist landmen during these uncertain times. We have included numerous links to various primary and secondary sources to enable landmen to review the intricacies of each program. Importantly, each landmen is in a unique situation and these programs are new and in some cases subject to quite a bit of uncertainty, so we urge you all to contact your tax professional as soon as possible to determine the best course of action for you. Many of these programs are extremely time sensitive and some are subject to limited funding, so do not delay.
Most of the programs detailed below were either created or enhanced by the recently-enacted CARES Act (HR 748). Here is the full text of the Act, if you wish to review the original source. As discussed below, the Act created some entirely new programs (e.g., PPP), while also enhancing some existing programs (e.g., EIDL). The Act therefore references and incorporates several pre-existing laws
If you would like to review some additional FAQs, the best I have found are those published by the New York Times, one for individuals and one for small businesses. These FAQs have so far been updated periodically as additional information is made available.
Delayed Oklahoma and federal tax filing and payment deadline
Both the Oklahoma and federal tax filing and payment deadlines have been extended until July 15, 2020. Here are some considerations you may wish to discuss with your tax professional.
Student loan payment and interest suspensions
Payments and interest on student loans held by the federal government are suspended from March 13 until September 30. Note, however, that not all student loans are held by the federal government. Although it appears that the payment and interest suspension should be automatically implemented by the loan servicer, you should review your particular student loans and the actions being taken by your loan servicer(s). For example, Great Lakes, one of the major student loan servicers, has created the following coronavirus update webpage, although other servicers may have different policies. Additionally, the Office of Federal Student Aid has created the following COVID-19 update webpage, which includes a great deal of useful information. You can still make student loan payments during the suspension period if you wish, but you will likely need to take affirmative action to ensure payments are made.
Homeowners whose mortgage is held by Fannie Mae or Freddie Mac may request to suspend their mortgage payments for up to 12 months. However, the missed mortgage payments will not be forgiven, and the homeowner will need work with the loan servicer (bank) to create a plan to pay the missed mortgage payments, which may require a modification of the loan to extend the term. Mortgage forbearance is not automatic, so you must contact your loan servicer to review your options. Here is a good resource page provided by the Federal Housing Finance Agency.
Be aware that not all mortgages are owned by Fannie or Freddie. If your mortgage is not held by Fannie or Freddie, the bank holding your loan may still allow you to request forbearance. Again, you must contact your loan servicer to review your options.
Most adults will receive a stimulus payment, presumably arriving any day now. It appears that these payments will either be submitted by directed deposit into checking accounts known to the IRS or by mailed check. The amount of the stimulus payment depends on each person’s tax filing status and number of dependents and phases out at certain higher income levels. There are countless stimulus calculators available on the internet. Here is one from the Washington Post.
The stimulus payment is technically an advance on a 2020 tax credit, so it appears that the relevant income for purposes of the stimulus is 2020 income. However, since 2020 taxes will not be filed for several months, the IRS is using either 2018 or 2019 tax returns (depending on whether a taxpayer had filed 2019 taxes yet) to determine the amount of stimulus payments. It also appears that if a person’s 2020 income will entitle them to a higher stimulus payment than what was originally received, which sadly will certainly be the case for many landmen, the taxpayer may receive the remaining stimulus tax credit when they file their 2020 taxes. If a person received a larger stimulus payment based on their 2018 or 2019 taxes than their 2020 taxes subsequently justifies, it is unclear if the taxpayer will be required to return a portion of their stimulus payment in 2020.
The CARES Act increased the weekly unemployment benefit and, crucially for many landmen, enabled independent contractors to apply for unemployment benefits. However, landmen should discuss their particular situation with their tax professionals, as some landmen operate through pass-through LLCs, which may affect one’s ability to file for unemployment.
Unemployment benefits are administered by the various states, and each state has certain unique benefit levels and requirements. In Oklahoma, unemployment benefits are administered by the Oklahoma Employment Security Commission (OESC).
Nobody will have to take required minimum distributions for 2020 from IRAs or workplace retirement accounts like 401(k)s. Furthermore, if the coronavirus outbreak necessitates an early withdrawal from an IRA or workplace retirement account, workers can withdraw up to $100,000 this year without paying the usual 10% early withdrawal penalty. However, it will still be necessary to pay any income taxes that would be due on the withdrawal, but you can spread out the income tax payments over three years from the date of the distribution. Importantly, over the three years you can also re-contribute the amount of withdrawn money to the retirement account even though you may ordinarily have been prohibited from making such large contributions.
Paycheck Protection Program (PPP)
The PPP is an entirely new program created by the CARES Act that allows qualified small businesses to obtain low interest loans to cover eight weeks of payroll plus a few other types of expenses. Importantly, the loan can be forgiven (i.e., it won’t need to be repaid) if the company uses the loan funds to pay “payroll costs” (which is a term that is defined in the CARES Act). However, forgiveness can be reduced if the average number of full-time equivalent (FTE) employees per month is reduced or if salary and wages are reduced.
The PPP is administered by individual banks, and each bank has developed its own proprietary application process and requirements. For example, some banks are only allowing applications from existing business banking customers. You may also have seen reporting that some banks have had difficulty creating the necessary infrastructure to handle the immediate deluge of PPP applications.
The application deadline for PPP loans is June 30, 2020, but reports indicate that the $349 billion allocated to the PPP may be depleted before then (if it is not already). Other reports suggest that the Treasury is already asking Congress for significantly more funding to replenish the PPP.
Landmen who operate through a business entity, including pass-through type entities, and landmen who are self-employed may be able to obtain loan forgiveness under the PPP. Due to the short application window and limited funding, landmen should urgently contact their tax professional and their bank if they believe a PPP loan may be appropriate for their situation.
Economic Injury Disaster Loan (EIDL)
EIDL is an existing program that was significantly enhanced by the CARES Act. Unlike PPP, the EIDL program is administered directly by the Small Business Administration (SBA), and the application is available on the SBA website.
The EIDL program allows small businesses to obtain low interest loans. The borrower can request up to $10,000 of the loan as an immediate advance/grant that does not have to be repaid. However, it appears that the advances are limited to $1,000 per employee, up to 10 employees. The remainder of the loan must be repaid.
The window to apply for the $10,000 advance ends on December 30, 2020. Again, landmen should contact their tax professional if they believe an EIDL may be appropriate for their situation.
Employee Retention Credit (ERC or ERTC)
The CARES Act created the ERC, which is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. Here is the IRS ERC FAQ.
Significantly, it appears that business owners must either chose a PPP loan or the ERC and cannot benefit from both, so landmen should discuss with their tax professional which program is best suited for their needs.
If you know of legislative or regulatory activity that you would like the Legislative Affairs Committee to analyze and discuss, please let us know by contacting Aaron Meek at firstname.lastname@example.org or (405) 724-7444 or John Arrowood at email@example.com or (405) 232-3722.