The CARES Act Includes a New SBA Loan Program

The Corona Virus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27th.  The legislation provides for a new loan program – dubbed the “Paycheck Protection Program” – to be administered by the SBA.  Up to $349 billion will be available to eligible businesses and non-profit organizations, which generally include those with fewer than 500 employees, but with some exceptions.

The maximum loan amount will be determined based on an entity’s monthly average prior payroll costs times 2.5, using a formula specified in the law.  Payroll costs can include most types of compensation, retirement and health insurance benefits, and payroll taxes, except that salaries above $100,000 per individual will be excluded.  Loan terms are favorable with no personal guarantees or collateral of any kind required.  The loan will be due in 2 years, unless all or a portion is converted to a grant (see below).  The interest rate is currently under negotiation between lenders and the SBA.  This is because bankers have feared that the proposed rate of .5% is too low for them to be able to adequately service the loans without losing money.

To apply for such loans, eligible employers should contact their local SBA-approved banker.  There will be an expedited process for loan approval, but applicants will be required to certify that the loan is necessary due to the economic impact of COVID-19, and proceeds will only be used to retain its workers and pay only eligible expenses, which include salaries and wages, paid leave and severance, health benefits, retirement benefits, payroll taxes and occupancy costs such as mortgage, rent and utilities.  The loan proceeds can also be used to pay interest on other debt obligations incurred before February 15, 2020.

Maximum lending per entity will be $10 million, but a portion of the loan can be forgiven for any expenditures for payroll, mortgage interest or rent, and utilities incurred within the first 8 weeks after the loan’s origination date, at the lender’s discretion.  Forgiven amounts would be adjusted downward for employees that have not been retained or to the extent employee compensation has been reduced by more than 25%.  And,  at least 75% of the loan proceeds must be used for payroll costs in order for the loan to be eligible for forgiveness. Any amounts forgiven will not be subject to income tax, which is another generous feature of the program.

As lenders will likely be overwhelmed with applications, businesses and non-profit organizations affected by the COVID-19 virus should begin the loan application process as soon as possible.  We will have to see how this plays out and if it will help keep businesses alive and employees working as we learn to cope with the virus.

There are many other provisions in the new CARES Act, including a new refundable payroll tax credit, as well as payroll tax deferrals, which I will address in upcoming posts.

ALERT:  This post as been updated with current information as of 4/4/20.  For the most current information, contact your local banker for loan terms.

2019 Filing Season & COVID-19 – Update #2

To Our Clients:

Due to the COVID-19 outbreak, we will be using this site to keep you abreast of the tax and business impacts of new legislation as well as filing and payment delays allowed by the federal government, and state and local municipalities.  Please subscribe to this blog, or check in frequently to make sure you have the most recent information.


Finally the state of Oregon has agreed to delay its filing deadline for many taxpayers in a way that is mostly (but not completely) similar to the recent decision by the U.S. Treasury to delay tax filing and payments normally due April 15th to July 15th.  This means that individuals, trusts, and corporations whose filing deadline was normally 4/15 can now wait to file a return or an extension until July 15th, and can also defer 2019 taxes normally due as well.  For estimated tax payments due 4/15, the State of Oregon elected NOT to change that deadline, so even if a taxpayer takes advantage of the filing and payment delay for 2019 taxes, they will still have to estimate and pay their 1st quarter Oregon taxes, even though they can defer their federal estimated taxes.

Fortunately for our clients who file California returns, the FTB announced on March 13th that all California taxpayer are granted an automatic extension of time to file and pay both 2019 taxes as well as 2020 1st quarter estimated taxes.

However, our focus at Wilken & Company will be to continue working as if the April 15th deadline is unchanged.  Since we don’t know what the future will bring, we can’t take the risk of not completing our work while we are all still able to do so.  We are planning to prepare and file all returns and extensions that would normally be due 4/15 by that date and will provide our clients with payment vouchers for 2019 taxes due and for estimated taxes due for 2020, as we always have.  Clients can determine when (between 4/15 and 7/15) they would like to make those payments, remembering that there is no delay allowed in making the Oregon estimated tax payments.  As we’ve said before, we advise anyone paying after the normal deadline to be sure to record the dates of any “late” payments so that we can request proper penalty relief when the time comes.

Since our offices are now closed to the public, we will be delivering tax returns and payment vouchers either via courier or electronically.  We will be in touch with each of you to determine which method works best for you.

After 4/15, assuming we are all still healthy, we will begin to prioritize the completion of any tax returns where clients are expecting refunds.

We don’t know yet whether the May 15th deadline for non-profit organizations’ Form 990 will be delayed, as there has been no specific guidance from Treasury yet.  However, this matter is currently under discussion.  Meanwhile, Oregon has specifically stated that nonprofit organizations with a May 15th deadline are not being granted any relief.  Many NPOs have had to close their doors or substantially alter their operations, so it would seem logical to also grant filing relief, but for now we have to assume that the deadline for calendar year 990’s is still May 15th.

At the federal level, several pieces of legislation designed to provide COVID-19 relief were enacted.  The Oregon legislature will convene soon to craft its own assistance package, and the City of Portland recently did so.

At the federal level, here is what we know so far:


Businesses with fewer than 500 employees will receive payroll tax credits for providing newly mandated paid sick leave and paid family leave for employees affected by the Coronavirus outbreak.  The refundable credit will be 100% of the costs, up to certain limits, and will be claimed on an employer’s Form 941 so that the tax benefit can be realized quickly.

Smaller businesses with less than 50 employees can be exempt from certain of the mandated paid leave requirements, but the exemption will only be granted on a case by case basis.  However, there will be a non-enforcement provision in place for 30 days after enactment, so that businesses have time to adjust.

Please note that this is new legislation and some of the provisions will likely require further clarification, so patience is required as we work through the process of staying abreast of these fast-moving changes.

Our clients who use payroll service bureaus should contact their provider to determine how wages paid under the new law should be categorized to ensure that they receive their full tax credits.  Clients running their own payrolls are at greater peril, as it will take time for each business owner to fully understand these provisions and then to properly report qualifying wages and related credits on the Form 941.

More information about the new law is available here:


The Senate approved today a proposed $2 trillion stimulus package that would contain a number of provisions affecting businesses and individuals.  The package will include checks issued to individuals, a  zero interest loan/grant fund available for businesses, robust unemployment benefits to laid off employees as well as, for the first time, unemployment benefits for self employed individuals who have lost their revenue stream due to the Corona virus outbreak.  The bill now goes to the House, and if unchanged in its current form is expected to be signed into law.  Once that happens, we’ll provide another update on its provisions.

We hope all of you are staying safe and well during this crisis and we thank all of those who are working tirelessly to provide health care, food delivery and other basic services to those in need.

2019 Filing Season & COVID-19 – Update #1



A Message for our Clients:



Accounting firms who assist others with tax compliance are deemed an essential service, so even if there are more draconian measures coming in the future, we will be able to continue operating.  However, we have changed our operating procedures, as follows:

  1. We are no longer open to the public.  If you need to drop something by, we have an outside secure drop box at our front door for this purpose.  Alternatively, please consider scanning documents to our portal, or faxing them to us at 503-225-1395.  Documents that are emailed should be password protected if they contain sensitive information.
  2. We will deliver all client returns using our couriers or using a paperless method involving uploading the tax returns and e-file forms to our portal. We will communicate with each of you individually regarding which method will work best for you.
  3. There is no change to the 4/15 deadline, so please be mindful that we are under the same time constraints as any other tax season and we ask your cooperation in returning your signed e-file forms to us as soon as possible. We ask you not to mail e-file forms if you are doing so within 7 days of the filing deadline, due to uncertainties in postal delivery.  In that case, you can scan the e-file forms to our portal, or fax them to us, as noted above.
  4. Although payment delays are permitted, we are advising all of our clients who can to pay all taxes and estimated taxes as usual on 4/15. If you are going to take advantage of payment delays, please be sure to record the date you actually made your payments, so that we can make the appropriate penalty relief request as may be required.

Thank you for your cooperation and understanding.  We hope all of you are staying well during these uncertain times, and we appreciate the opportunity of working with you.

Putting the General Back in Your General Ledger

Using accounting software makes it seem like a “no-brainer” to set up the Chart of Accounts for your business or non-profit organization.  Just select a sample chart and away you go, adding additional accounts on the fly as new expense categories emerge.

Sadly, it is the “no-brainer” part of this process that results in a cumbersome Chart of Accounts and a General Ledger with transaction details scattered across multiple accounts.  My rule of thumb is this:  if your chart of accounts is over 3 printed pages long or you have any accounts with less than $500 posted during a year, you’ve missed the whole point of your accounting system.  And you’ve been led down this path, usually, by QuickBooks.

The purpose of the Chart of Accounts is to arrange your transactions in a standard format which achieves the following:

  • Year over year comparability
  • Comparability with similar businesses or operations
  • Ratio Analysis
  • Budgeting
  • Financial Reporting in accordance with GAAP
  • Tax Reporting in accordance with IRS requirements

A Chart of Accounts that tries to incorporate departments or divisions into the numbering scheme rather than as account classes (Quickbooks) or departments (other more sophisticated software) will result in a cumbersome system that makes it difficult for management and for outside professionals to efficiently do their work.

Many business owners who also attempt to do their own bookkeeping fall prey to the ease with which accounts can be added and before they know it, they have created a mess which makes it tough to run the business efficiently and to make decisions based on accurate information.  Accounting fees for outside CPAs will increase significantly where a client’s Chart of Accounts has been poorly thought out and is way too lengthy.

Those who use accounting software are often not trained as accountants, so don’t realize the purpose of the Chart of Accounts, and its offspring, the General Ledger.  Within the General Ledger are all the transaction details, organized by account.  The details of your transactions should live here, not in the Chart of Accounts.  The General Ledger is meant to be organized by “general” and widely accepted categories.

So, it’s a good idea to meet with your outside CPA every few years to see if the Chart of Accounts can be successfully truncated so that management has more useful information, and the process of preparing financial statements and tax returns is more efficient.

The 10 Minute Bank Reconciliation

I am re-posting this blog from a few years back.  Many business owners, bookkeepers and accountants struggle with performing bank reconciliations and resolving variances.  And yes, there are times when I can do a bank reconciliation in 10 minutes, even for clients with hundreds of transactions per month.

Over the years, I have developed a number of techniques to help me quickly identify bank reconciliation errors and potential causes. But before I get to the “how” of performing bank reconciliations, what are they and why should you do them?

The purpose of a bank reconciliation is to allow you to determine the accuracy of cash balances on a specific period-end date (usually monthly) as recorded in your general ledger.  You should always perform your bank reconciliation as of the last day of the accounting period, not mid-month, because that’s not the date that you are closing the accounting period.  So, get the bank to give you statements with a month-end cut off.  The bank statement tells you which transactions have cleared the bank, regardless of whether such transactions are known to you.  Your books have the complete record of all of your known transactions, but items can appear on your bank statement that you don’t know about.  These are, generally:  NSF checks, interest earned, bank fees, other automatic debits, and deposit errors.  Likewise, items that you know about may not be known to the bank, such as outstanding checks and deposits in transit.  So, the bank reconciliation ties together these two separate sets of records, with your own books trumping everything, because that’s what will be reflected in the general ledger.

Bank reconciliations before the existence of accounting software were often performed in a “4 column” format, with the following column headings:  Beginning Balance, Deposits, Checks, Ending Balance.  This format allowed the accountant or bookkeeper to quickly identify reconciliation issues because each column would then be totaled to agree to the bank’s totals.  This would mean that you could tell if your error was in the checks or in the deposits section of your bank reconciliation.  With accounting software, even though the process is the same, your ability to identify errors is reduced.  A lot of software packages will try to give you hints, but sometimes the hints add to the confusion.  In addition, with accounting software, you can fail to mark items that have cleared and still appear to have correctly performed a bank reconciliation.  This occurs when you or your CPA make journal entries to correct errors, but the journal entries and the errors themselves never get marked as cleared.  I have seen bank reconciliations with un-cleared transactions going back 5 years!  Obviously, this cannot be even factually true, and it means that whoever is performing the bank reconciliations does not understand their function very well.

Aside from ensuring the accuracy of your general ledger cash balances, timely and accurate bank reconciliations are one of the most important elements of your internal control system.  Stale items or unusual outstanding items at period end can indicate financial fraud.  Cash accounts are involved in 93% of all frauds, which is why auditors are trained to search for and identify unusual transactions when reviewing bank reconciliations.  Management review of bank reconciliations is a critical function, but often managers don’t actually know what to look for.  If this describes you, contact your CPA and ask them to show you how to perform this kind of review and what to document, and I’ll offer a few tips below.

Now, back to the 10 minutes I have allotted for the bank reconciliation:  open up your reconciliation tab in your accounting software and enter the period end date and the bank statement balance where indicated.  Make sure that you have the software set up NOT to show transactions for periods after this date.  Mark all of the transactions as cleared.  Now, working backwards, take your bank statement and identify the last check which cleared, and breaks in the check sequences and unmark those checks which haven’t cleared.  Then, enter any automatic debits that you haven’t yet recorded in your books, but which are shown on your bank statement.  Check the last deposit in your books to see if it has cleared the bank.  If not, unmark deposits that have not cleared.  Enter your interest earned and any bank charges shown on the bank statement.  Not in balance yet?  Scan the bank statement for any surprises, such as NSF checks and deposit errors.  Most of the time, the bank reconciliation has now been balanced and is ready to be printed (yes, always print or pdf it because certain software may not allow you to do this later, and your CPA wants it and so does the IRS if you are ever audited).

If you are still out of balance at this point, it is now time to check each item from the books to the bank, one by one.  Again, I usually start backwards because it is generally the month-end transactions that are the culprit.  Remember that your books trump all, so you use your book transactions as your source and compare that to what has cleared the bank, not vice versa.

Once in balance, the bank reconciliation is now ready for management review.  The business owner or manager should confirm that only current transactions are listed in the outstanding checks.  Checks older than 6 months are considered stale.  Usually, these are errors or duplicates that have not been corrected, but if not, Oregon businesses are required to turn over any unclaimed payments to the State Department of Lands.  If you see any unusual outstanding checks, or any “corrections” entered immediately after month end, this could indicate fraud.  Likewise, outstanding deposits or transfers among accounts that are from a prior period or are immediately reversed after month end could also indicate fraud. Scan through all the transactions listed and make sure that the totals appear reasonable in comparison to your typical monthly volume and dollar amounts of transactions, and that check sequences make sense.  Scan check payees to make sure you recognize the vendors.  Review the payroll entries and trace them back to the payroll reports provided by your service bureau.  And, even though most bank reconciliations are performed by the same person who recorded the transactions (your bookkeeper), make sure that this person IS NOT a check signer.

The internal control function of the bank reconciliation is where you should spend your time.  The routine part involving doing the reconciliation itself should not be a hassle, and if it is – get in touch with your accountant for their advice on how to make the process more efficient.

How to Communicate (and Commune) with your CPA

When I started my accounting career back in the mid 1980’s, written business communications were a formal affair, conducted via correspondence carefully tapped out on an IBM Selectric by a highly competent office manager with lightning speed dexterity.  The missive (or missile, in some cases) followed a strict three paragraph format:  introduction, body, and conclusion.  Attachments were provided to elucidate whatever was discussed in paragraph 2, and the composition adhered rigidly to formal requirements (thank you, high school English teacher).

Informal communications which required a back and forth discussion and exploration of ideas were handled in face to face meetings, or over the telephone.  Voice mail did not exist. So, upon arriving at work, a stack of messages would be waiting upon one’s desk, haphazardly arranged on a spiky metal implement which could double as a weapon if needed.  Such messages were the original of a triplicate carbon form, with copies dutifully archived in the client’s file as well as the firm’s master file.

Back then, sometimes the volume of telephone communications from clients could be overwhelming especially during tax season, but we CPAs didn’t have to deal with junk calls or other unwanted communications from unknown individuals.  We relied on our highly competent admin staff to field every communication, and filter out all but that which mattered.

Since then, many extraordinary changes have taken place.

First and foremost:  the volume and detail of information needed to prepare a client’s tax returns increased significantly, more than can be described in this post.  Compliance requirements such as 1099 and 1098,and K-1 reporting and matching upped the number of documents needed to proceed with tax preparation, but represent just a small fraction of the increased complexity of tax law in the U.S. from the 1980’s to the present.

Amidst all of these tax law changes, the internet emerged in the 1990’s, with its related instant communications via email. In 2007, Apple introduced the first iPhone, although BlackBerry (“CrackBerry”) had dominated the smartphone market prior to this.  With the immediacy offered by these new forms of communication, the quality and reliability of such communications seemed to deteriorate proportionally with the increase in technological advances.  The temptation to send out a communique (or a series of communiques) with little detail, and in a reactive mode is, I think, too great even for the most contemplative of souls.

As it turns out, there’s a reason for this.  Humans convey information most effectively in face to face encounters.  That’s how our ancient brains are wired.  Researchers have determined that emails convey only 7% of the information that would otherwise be conveyed in a face to face meeting.  And, voice communications convey about 45%.  Why?  Human brains are programmed to do very complex stuff.  Facial cues, body language, and vocal intonations all contribute to the layers of complexity and meaning in any face to face communication.  Voice communication via telephone has the benefit of conveying the information supplied by vocal intonations.  Who doesn’t want to receive a telephone call from their doctor, as opposed to an email response?  There is a lot of information about trust and caring that can only come through with voice or face to face communications.

And that’s another interesting aspect of communications.  Humans need to determine whether or not they can trust the person they are communicating with.  Face to face communications provide all the cues one can ask for – although many people are still manipulated in face to face encounters by bad actors.

The trust factor that is normally evaluated in face to face communications is apparently replaced (according to research) by the quickness of response in email or text communications – obviously a very unreliable criteria in evaluating trustworthiness.  Having more emails than can be responded to in 24 hours is the new normal for professionals.

What to do?  If you only need to forward documents or send otherwise “inert” information – forward an email.  But, if you really want to explore ideas and share information about changes in your financial situation, pick up the phone and give us a call.  We would like to talk with you.

Retroactive 2017 Tax Law Changes

While I’ve had many a melt-down over the years regarding federal tax legislation enacted late in the tax year, or even a few days after the tax year has ended, never before has there been a retroactive change to prior year tax law enacted after tax filing season has actually begun..

These are the tax breaks that officially expired on 12/31/16, also known as “extenders” because they are typically re-upped each year by Congress.  Why weren’t they included in the “tax reform” package that was hastily enacted in late December of 2017?  Well, because they are tax expenditures, and therefore cost money – billions of dollars in fact.  That would have blown Congress’ contrived $1.5 trillion net expenditure limit, so they couldn’t be added to that legislation.  Solution?  Just add them later to a budget deal, raise the debt ceiling, and away you go.  After all, the true cost of the extenders is hidden in plain sight behind their sunset dates.  By making them “temporary”, these extenders cost far more than what is included in the federal budget, by some accounts, approaching $100 billion.

Meanwhile, IRS must now revise dozens of tax forms and schedules, including the 1040 itself in the middle of the 2018 filing season.  In response to this unheard of development, IRS issued what is probably the shortest press release in history – a 3 sentence “statement” promising to assess the significant changes to the tax law “as quickly as possible”.

The newly enacted budget deal includes money for lots of stuff (how about a parade?) but doesn’t provide funding for IRS to address not only the “tax reform” package passed in late 2017, but the newly revived extenders as well.  The IRS has estimated that it will need $397 million to upgrade systems and hire new staff for the expanded workload.  However, they were only given $90 million to do so.  In my profession, it may seem odd to have compassion for IRS and its workers, but this year I do, more than ever.

Taxpayers who have already filed their 2017 tax return, but could benefit from an extender that was retroactively re-enacted, will need to amend their tax return to claim any benefits.  Sadly, the cost of doing so may outweigh the tax savings.  This fact pattern affects mostly lower income filers who tend to file early in the season.  Score another goal for income inequality that is baked right in to the cake.