Agribusiness Shareholders Mike Regan and Eric Thuente, recently held a Q&A panel to help ag-based businesses and producers decipher recently enacted legislation related to the COVID-19 pandemic. During the panel, they provided an overview as well as things to think about and then answered specific questions about the new legislation. You can view the webinar on-demand. Here are a few of the things they covered:
Ag Economic Environment:
Revenue streams for farmers are declining in the midst of an already challenging ag environment. The ag economy was already struggling with two years of low commodity prices, trade and tariff uncertainties, impacts from adverse weather conditions, and global supply and demand issues.
CARES Act Provides $46B in Agriculture Funding:
The USDA received funds to help those directly impacted by COVID-19, to provide support to farmers via avenues similar to the Market Facilitation Programs (MFPs) and to provide targeted relief for cattle and other livestock producers plus most of the specialty crops that appear to have been impacted the most by COVID-19 to date. Domestic food programs, like SNAP and CNP, also received additional funding.
Food and Agriculture Listed as an Essential Activity:
The Department of Homeland Security lists food and agriculture as critical infrastructure which is important as most states have implemented shelter in place or stay at home orders. Grain, oilseed handlers, processors and distributors, as well as agribusinesses and farmers are specifically referenced.
Cash Flow/Working Capital Management:
Review your budgets, weekly cash flow and work to reduce overhead costs. Need to work on calculating your cash burn rate if you are experiencing monthly operating losses.
Look at available SBA loan programs, grants, restructuring your debt and reducing interest. Also review loan covenants and modify covenants with lenders if possible.
Tax incentives to improve cash flow/working capital – pay attention to provisions in the CARES act for net operating loss carryback claims and tax credits. Review your tax entity structure to see if a C corp or S corp is the best fit for your situation.
Eric and Mike also reviewed the major provisions found in the CARES Act and SBA PPP & EIDL Loans available to businesses.
When are federal and state (Iowa or Illinois) estimates for individuals due for 2020?
- Federal – 1st Qtr = July 15; 2nd Qtr = July 15; 3rd Qtr = Sept. 15; 4th Qtr = 1/15/2021
- Iowa –1st Qtr = Apr. 30; 2nd Qtr = June 30; 3rd Qtr = Sept. 30; 4th Qtr = 2/1/2021. Iowa just recently provided guidance for penalty relief for individual taxpayers required to make estimated tax payments which have an installment due date on or after April 30, 2020, and before July 31, 2020.
- Illinois – Estimated payments for 2020 taxes that are due April 15 and June 15. Taxpayers are required to estimate their tax liability for the year and make four equal installments. Taxpayers will not be assessed a late estimated payment penalty if the amount of the installments equals 90% or more of the current year’s liability or 100% of the previous year’s (2019 or 2018) liability.
Are guarantee payments and partner draws for LLCs/partnerships be eligible for the monthly payroll calculation for SBA PPP loan?
- Self-employed businesses are eligible for the PPP loan, based on self-employment net income. Guarantee payments is a form of compensation for services and is factored into self-employment income, thus it seems guaranteed payments would be eligible, but we do not have a definitive answer. Since partner draws are not considered compensation or tied to services performed, the partners draws should not be included in the calculation for the funds for SBA PPP loan.
Will agribusiness companies or farm producers be able to utilize the employee retention credit?
- The option is if approved for the SBA PPP Loan, then not eligible for the employee retention credit. Agribusiness is considered an essential activity, so not subject to shut-down due to government orders. Therefore, the company would need to see decline of more than 50% of revenues in the quarter as compared to the previous 12-month calendar year quarter which will be very unlikely. Cash basis farmers who pay employees could push revenue (grain sales) into the third quarter 2020 and thus could have a second quarter 2020 with no revenues or over 50% decline in revenues, and thus employees paid in second quarter 2020 would in fact be eligible for the employee retention credit.
Will there be additional funds provided by the government?
- Expect a phase 4 funding which likely could include additional direct payments to individuals, additional funding for the SBA PPP, or some form of infrastructure bill to create jobs for those currently unemployed to put back to work.
Our personal farming operation uses several independent contractors, mostly for labor, and we provide 1099’s to them. Based on what you know today, can we qualify as self-employed and utilize the 1099’s to support our application?
- Self-employed individuals can qualify for the PPP loan. However, they would not be able to use the fees paid to independent contractors in the computation of their loan amount. In determining their PPP loan amount, they would be required to submit Forms 1099-MISC, and income/expenses from the sole proprietorship.
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