Tuesday, 27 October 2020
The LMICK Minute - Issue #9
To our Policyholders:
Do you remember back in March of this year thinking that we’d shut down our lives for 2 or 3 weeks and then get back to normal? Yet, here we are 7 months later and we find ourselves grappling with a new normal as the Covid-19 virus continues to sicken our family and friends, disrupt schools, impact law practices and other businesses, and stir anxiety for what the fall and winter will bring. We hope you, your family and your work colleagues are healthy and that you’ve adapted to this new normal, personally and professionally, as much as possible. Here at Lawyers Mutual, we remain committed to serving you and meeting your professional liability insurance needs.
As we push into the final quarter of the year and brace ourselves for what lies ahead, we wanted to raise a few issues with you for your consideration. Specifically, we want to ensure that you are aware of the following: 1) potential tax implications associated with the receipt of a PPP loan and out of state remote work; 2) best practices for those darn virtual meetings and presentations that seem to be here to stay; 3) changes the U.S. Postal Service has implemented around its signature services procedures; and 4) an important tool to better manage your clients’ expectation during a pandemic. Finally, we want to announce a free presentation to LMICK insureds coming in January of 2021 that you won’t want to miss.
Tax Implications of PPP Loan Forgiveness
First, and for those of you who secured a PPP Loan for the protection of your practice, please plan for any tax implications that may arise next year when you file your 2020 taxes. You’ve likely received your PPP funds, spent some or all of those monies and are working on the forgiveness application. Who would not want some or all of that PPP loan forgiven? It is in forgiveness of some or all of the loan, however, that Uncle Sam may come calling with an outstretched hand. Forgiveness of the loan creates a “cancellation of debt” income that is taxable to the recipient of the loan. We are fully aware that the CARES Act which established the PPP provides that businesses would not incur taxable income on the amount of any PPP loan that is forgiven.
What the CARES Act did not address is the deductibility of expenses paid with forgiven PPP loan proceeds. You spent your loan monies on certain “forgivable uses” to ensure forgiveness. These forgivable uses are normally business expense deductions. However, the IRS has stated in Notice 2020-32 that there is no allowable deduction for an otherwise deductible expense if the payment of the expense causes forgiveness of a PPP loan. The IRS’s rationale is that permitting these expenses to be deductible would provide a double tax benefit. While there has been some effort to pass legislation to address this situation, it is unclear how this will ultimately be resolved. We simply wanted to remind you to consult your office’s tax professional so that you position yourself for the smallest tax consequences possible.
Speaking of forgiveness, the SBA has issued a simplified loan forgiveness application (Form 3508S) for PPP loans of $50,000 or less. It appears that the simplified application and less stringent spending requirements for these smaller PPP loans seems to effectively guarantee forgiveness of PPP loans up to the $50,000 threshold. Discuss the forgiveness requirements with your banking and tax professionals. If you secured a PPP loan of $50,000 or less, and you timely and accurately complete the pared down application, it would seem your loan is going to be forgiven – and that implicates the tax issues around forgiveness as discussed above.
Thanks to our friends at DeanDorton, a certified public accounting and professional business advisory firm, for helping us understand these PPP loan forgiveness and tax issues so that we could share that knowledge with you.
Tax Issues Around Out- of- State Remote Work
There is another pandemic-related tax complication that could affect your 2020 taxes. Did you hunker down during the pandemic at your vacation home outside of Kentucky or with relatives or friends in another state and work remotely while there? Did you work at your home in a bordering state though your permanent office is in Kentucky? If the answer to either or both is yes, you could be staring down a significant tax bill. Some states impose income tax on folks who work in said state, even for as little as a single day. The state where you live and the state(s) where you earn income have the right to tax that income earned. So, depending on the various states’ tax laws, you may be facing the possibility of more than 1 state taxing the same earned income. Your tax liability may be lessened, however, if one or more of the states in play in your specific situation offers credits for taxes paid to other states. Finally, a number of states have agreed not to impose taxes on workers who were temporarily located and working there because of the pandemic. Those states include Alabama, Georgia, Illinois, Indiana, Massachusetts, Maryland, Minnesota, Mississippi, Nebraska, New Jersey, Pennsylvania, Rhode Island and South Carolina. But, please talk to your tax professional to understand what tax issues may be looming in this regard. Credit goes to a Louisville Business First article titled Here’s how Moving to Work Remotely Could Affect Your Taxes and published on August 26, 2020, for guidance on this issue.
Best Practices for Virtual Meetings and Presentations
It would certainly seem that the virtual meeting, deposition, presentation, etc. is here to stay. It is amazing how many stories we continue to hear about poor camera angles, improper attire, and distracting background noises for failure to stay on mute. Let’s be honest, those are the some of the least offensive mishaps. We are confident that none of our insureds have gone through the McDonald’s drive through to order food while on a zoom meeting or participated while in pajamas and propped up in bed. Nonetheless, we can all use a reminder of how best to present virtually, including equipment needs and content pointers. With so many of its continuing legal education programs going virtual, the Kentucky Bar Association has prepared a document entitled Best Practices for Virtual Presentations. The KBA has agreed that LMICK can share those best practices with you and a link is included for your ready reference. Discharging your ethical duty to represent your clients competently includes technical competence. See SCR 3.130 (1.1) and Comment 6. If you have been slow to develop a proficiency in virtual meetings and presentations, help is at your fingertips.
Covid-19 Related Changes by the Postal Service
LMICK’s sister bar-related insurance company in North Carolina recently alerted its insureds to an important issue that we are compelled to share as well. As a result of the pandemic, the United States Postal Service (USPS) has changed its Signature Services procedures for Certified Mail and mail requiring signature deliveries. These changes implicate whether proper service, as required by Rule 4 of the rules of Civil Procedure, has been achieved. The USPS website is not very clear on what specific changes have occurred, but it seems that the USPS is no longer obtaining the recipients’ actual signature on the green card. Our friends in North Carolina shared an instance where the post office did not deliver the certified mail in person or get a signature on the green card. Rather, the postal worker subsequently wrote “COVID-19” on the green card to note the USPS’ process change. In another instance, the postal employee signed the recipient’s name and wrote “COVID-19” to the electronic signature pad. Please be aware of these process changes, albeit anecdotal, and consider effectuating service in another acceptable manner until the USPS has returned to regular operations. If you have personal experience with these or similar changes, please let us know so that we can more fully inform all of our insureds of what is happening at the USPS.
Another Reason to Utilize Engagement Letters
Managing your clients’ expectations can be challenging in normal circumstances, but is likely more difficult now during the pandemic. Of course, communications at regular intervals is always key. Yet, there is another way to help your clients understand what you can and cannot do during this difficult time. Your engagement letter, and we know you all use them with every client, can be the best opportunity to set expectations early in the attorney-client relationship. Many of you probably have a template representation letter that you tweak for each different client and his, her or its circumstances. Now might be an opportune time to more substantively modify your engagement letter template to address the repeated challenges you’ve faced in representing your clients in the past few months. In the engagement letter, you can explain the lengthy delays the client may face in pursuing or defending a civil matter, the likelihood of only virtual interaction with the court and opposing party, and the myriad of other ways the efficient and in person practicing of your cases has been upended. An effective engagement letter is a powerful risk mitigation tool. One that doesn’t account for the ongoing pandemic may just miss the mark.
Save the Date
Importantly, please plan to join us on January 13, 2021 from 12:00 – 1:30 p.m. for a presentation from Brooke Lively, author of From Panic to Profit: How 6 Key Numbers Can Make a 6-Figure Difference in Your Law Firm. We know that 2020 has been a bear of a year. We want to help you turn the corner into 2021 and set you and your practice up for a more profitable and successful year. More specific information on how to join us for this presentation will be forthcoming. Mark your calendars now!
Finally, thank you for selecting Lawyers Mutual of Kentucky for your professional liability insurance coverage. We believe Kentucky lawyers deserve uncompromising protection and support and are committed to providing real-time risk management tips for your practice. Over the past 7 months we have all adapted our business model. It would seem that many of these changes will still be in place post pandemic. For Lawyers Mutual, the elimination of live meetings and events has taken away personal contacts and sales opportunities all across the Commonwealth. Yet, we’ve increased and enhanced our virtual meetings, virtual events, direct calls and emails. But, our strongest resource has been referrals from fellow attorneys. If you have colleagues whom we might serve, please have them contact us at 502-568-6100 or www.lmick.com. We would appreciate the opportunity and thank you in advance for your recommendations and referrals.
Please take care of yourself, your family and your attorney colleagues. Stay well!
Angela Logan Edwards – CEO
Nancy Meyers – Marketing Director