On December 27th, the President signed into law a second pandemic relief package as part of a larger government funding bill passed by Congress entitled The Consolidated Appropriations Act, 2021 (“CAA”). In March of this year, President Trump signed the first pandemic-related stimulus bill: H.R. 748, the Coronavirus Aid, Relief and Economic Security Act (Public Law No: 116-136, the “CARES Act”). The tax provisions in the CAA, are numerous, but for the most part, extend certain tax relief provided in the CARES Act and resolve the controversy regarding Congress’ intent related to certain CARES Act relief provisions.  The CAA also contains several important federal income tax changes, as set out below.

Tax Treatment of PPP Loans

The CAA clarifies that otherwise-deductible expenses funded by loans received under the Paycheck Protection Program (PPP), which was created by the CARES Act, will be deductible under Internal Revenue Code (“IRC”) Section 163. While Congress made clear in the CARES Act that the loans made under PPP were not taxable, it was not clear whether expenses funded by PPP loans would be deductible.  Confusion arose regarding deductibility of the expenses when the Internal Revenue Service (the “IRS”) issued guidance that expenses funded by PPP loans would not be deductible.  However, the new legislation clarifies that it was Congress’ intent that such expenses be fully deductible.

Retention Credit Expanded

One of the major business policies behind the CARES Act was to encourage businesses to retain their employees during the economic turmoil caused by the lockdowns. To that end, the CARES Act provided an employee retention credit to employers, based on wages (and a proportionate amount of qualified health plan expenses) paid to employees.  The CAA  increases the credit percentage to 70 percent of qualified wages and expands the wage base to $10,000 per employee per quarter (as opposed to per year in the CARES Act). The CAA  also reduces the amount of losses that a business must incur to be eligible for the credit.  In addition, the CAA revises the credit to allow a business that received a PPP loan to claim the credit to cover payroll expenses not covered by PPP. The credit expires four quarters after June 30, 2021.

Business Meals Deduction

In an effort to help restaurants that have suffered substantial economic losses during the pandemic, the CAA  increases the deduction for business related meals to 100 percent through December 31, 2022.  Under current federal income tax law, a business may only deduct 50 percent of the cost of business-related meals.

Again, these are just a few of the many tax provisions proposed in the CAA.  Businesses and individuals will be analyzing the impacts of the new law for quite some time.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Willie Kolarik at (225) 382-3441, or Michael McLoughlin at (504) 620-3351.

On December 21, 2020 Congress passed the lengthiest piece of legislation in its history—nearly 5600 pages. While most Americans are focused on the provisions of the “Consolidated Appropriations Act, 2021” related to coronavirus response and recovery, it also included provisions that will directly impact pipeline operators.

The “Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2020” appears at page 2634. The Act contains two provisions which will expand federal regulation of the natural gas pipeline industry.

First, the Act requires PHMSA to, “Not later than 90 days after date of enactment of this Act… issue a final rule with respect to the proposed rule issued on April 8, 2016 …that relates to consideration of gathering pipelines.” The proposed rule published in 2016 changed the existing definition of gathering lines to remove the reference to the API RP 80 definition of gathering lines and replace it with a definition drafted by PHMSA. It also expanded regulation of rural gathering to all lines  more than 8.625 inches in outside diameter. Although recent information from PHMSA shows that it may reconsider some of the provisions of the proposed rule before adoption, industry representatives should pay attention to this issue.

Second, the Act requires PHMSA to adopt, within the next year, regulations that require operators of certain regulated gathering lines to conduct leak detection and repair programs. Once again, industry representatives will want to follow PHMSA’s efforts on this topic.

On Monday, December 21, 2020, Congress passed another stimulus package to provide certain coronavirus relief for individuals and businesses, among other things.  One looming question was whether Congress would extend the emergency paid sick leave (EPSL) and emergency paid family leave (EFMLA) provisions of the Families First Coronavirus Response Act (FFCRA) into next year?

The answer is  – no.  The FFCRA paid leave laws have not been extended, and thus the paid leave law mandates for employers who have fewer than 500 employees expire at 11:59pm on December 31, 2020.

However, Congress’s latest package does allow qualifying employers to voluntarily extend those benefits to employees during the period January 1, 2021 through March 31, 2021 if the employer so chooses, and the employer can continue to receive a credit against payroll taxes as before, with one caveat.  In order to claim the payroll tax credits, the employer must comply with the requirements of the EPSL and/or EFMLA as if they were so extended through March 31, 2021.

Importantly, employers cannot claim payroll tax credits for any such paid leave in the first quarter of 2021 if the employee already used up his/her allotment of FFCRA emergency paid sick or family leave in 2020.  There may be an exception to this for those employers who use the calendar year for determining the FMLA 12-month period, and hopefully the DOL or the IRS will provide some clarity through regulation, answers to FAQs, or other agency guidance.  The new package also does not appear to prohibit an employer from choosing to continue the EPSL through March 31, 2020 but not the EFMLA, or vice versa.  The best advice is to talk with your counsel if you have questions or if you are weighing whether to extend such paid leave benefits into the new year.

Precise drafting is critical to a successful transaction, even involving a seemingly simple assignment of an overriding royalty interest.  In Piranha Partners v. Neuhoff, 596 S.W.3d 740 (Tex. 2020), the Texas Supreme Court was called upon to determine the scope of an assignment of overriding royalty interest.  The issue was whether the overriding royalty interest affected the entire oil and gas lease, or whether it was limited to the lands or wellbore described on the Exhibit A attached thereto. After discussing various rules of construction and the surrounding circumstances, the court concluded that the overriding royalty interest affected the entire lease specifically holding that, the overriding royalty assignment conveyed “all of [grantor’s] right, title and interest in and to the properties in Exhibit “A”.  The Piranha opinion contains a depiction of the relevant portion of the Exhibit A, which reads as follows:

Lands and Associated Well(s):

Puryear #1-28
Wheeler County, Texas
NW/4, Section 28, Block A-3, HG&N Ry. Co. Survey

Oil and Gas Lease(s) and/or Farmout Agreements:

Oil & Gas Lease(s)
Lessor:             [the Puryears]
Lessee:                        Marie Lister
Recorded:       Volume 297, Page 818

The first part of the description on Exhibit A identifies the “Lands and Associated Well(s)” as the NW/4 of Section 28 and the Puryear #1-28, respectively.  The second part identifies the “Oil and Gas Lease” as the relevant oil and gas lease, which covers all of Section 28.

The grantor in the overriding royalty assignment is Neuhoff Oil & Gas, which owned a 3.75% overriding royalty interest on all production under the lease (various members of the Neuhoff family succeeded to the interest of Neuhoff Oil and Gas and are referred to as “the Neuhoffs”).  The grantee in the assignment is Piranha Partners.

After the overriding royalty assignment, several new wells were drilled on the lands affected by the referenced oil and gas lase.  The operator paid the overriding royalties on those wells to the Neuhoffs, believing that the overriding royalty was limited to the wellbore for the Puryear #1-28 well.  However, after obtaining title opinions stating that Piranha owned the overriding royalty interest on production under the entire lease, the operator paid Piranha retroactively to first production from the new wells and demanded a refund from the Neuhoffs for the proceeds that they erroneously received.

The Neuhoffs filed suit, claiming that the overriding royalty interest affects only production from the Puryear #1-28 well.  The trial court disagreed and held that the assignment conveyed an overriding royalty interest affecting the entire lease.  The court of appeals disagreed with both the trial court and the Neuhoffs and held that the overriding royalty interest affected the northwest quarter of Section 28, but not the remainder of the leased premises.

The Texas Supreme Court began its analysis with the granting language quoted above, which does not describe the interest conveyed, but instead incorporates the description found on the attached Exhibit A.  The court then considered and rejected three rules of construction relied upon by Piranha Partners.  Piranha argued that the deed should be construed to convey the greatest estate permissible under its language, focusing on the word “all” in the granting clause.  However, the court rejected this argument and said that the deed conveyed “all” interest in the properties on Exhibit A, not “all” interest in the lease.  Piranha next argued that the court should reject any alleged exception, reservation, or limitation that is not expressly and clearly stated in the deed.  The court rejected this argument as well, stating that this rule is inapplicable because the assignment did not contain a reservation or exception.  The relevant issue was the scope of the grant, not the extent to which a reservation or exception limits that grant.  Piranha’s final argument was that if there is any doubt the deed should be construed against the grantors.  The court said that this rule is inapplicable here because the deed is not ambiguous or in doubt.

The court next turned to the circumstances surrounding the assignment.  Neuhoff Oil & Gas sold the interest through an oil and gas clearinghouse auction, which involved numerous other properties in different states, and did not include any negotiations between the parties.  Neuhoff argued that because certain references in the paperwork, including the invoice provided by the clearinghouse, refer to the “Puryear B #1-28” well, the intention was to convey an overriding royalty only as to lands in the northwest quarter of Section 28.  In contrast, Piranha argued that the reference to the well was simply a shorthand label because that was the only producing well on the lease at the time.  The court, however, noted that the circumstances fail to provide meaningful support for either party’s arguments, so it then turned its attention to the assignment itself to determine the amount of interest sold.

The court acknowledged that, standing alone, the Exhibit A is ambiguous because it does not adequately identify the interest assigned, but that taking a holistic and harmonizing approach required it to consider all provisions in the assignment.  It then engaged in a detailed analysis of several specific clauses and phrases throughout the assignment, and the manner in which they aid in interpreting the Exhibit A.  One clause found after the grant states that it includes “All oil and gas leases, mineral fee properties or other interests, INSOFAR AND ONLY INSOFAR AS set out on Exhibit A … whether said interest consists of leasehold interest, overriding royalty interest, or both … which [interest] shall include any working interest, leasehold rights, overriding royalty interests and reversionary rights held by [Neuhoff Oil], as of the Effective Date” (emphasis added).  The court determined that even though the paragraph limits the interest to that found on the Exhibit A, the italicized language states that the Exhibit A includes any overriding royalty held by Neuhoff.  The assignment also includes a grant of contracts “to the extent that they affect the Leases,” and the court stated that if the conveyance included only Neuhoff’s overriding royalty in the well or the northwest quarter, there would have been no reason to convey all contracts that affect the lease.  Finally, the court made reference to language stating that the overriding royalty was payable pursuant to the terms of the oil and gas leases described on Exhibit A, and that the interest is to be proportionately reduced to the interest in the oil and gas leases described on Exhibit A owned by the assignor or if said leases cover less than the entire mineral estate, and concluded that the reference to the oil and gas leases meant that the interest assigned was an overriding royalty in the oil and gas lease itself, even though the exhibit also made reference to lands and a well.

After construing the assignment in its entirety and harmonizing all provisions, the court concluded that the overriding royalty included production from the entire lease, and was not limited to the lands or well listed on the Exhibit A.

There is a vigorous dissent by Justice Bland, who was joined by Justice Lehrmann, which argues that the court should have held the property description to be ambiguous and remanded the case for a jury to determine the meaning.  The dissent states that the majority should not seek “clues from snippets of unrelated words found in other phrases in the assignment to resolve the case.”

The Piranha case illustrates the importance of careful drafting of assignments of overriding royalties, especially if there are limitations involving certain lands or wellbores.  Although not at issue in the case, overriding royalties can also be limited by depth, which adds another dimension. Further, these same issues and considerations are important in conveyances of mineral interests, including leasehold assignments and mineral and royalty deeds.

Jimmy Dupuis is a partner in The Woodlands office of Kean Miller, LLP.  His practices focus on upstream oil and gas matters. Jimmy may be reached at 832.509.2302 or Jimmy.Dupuis@keanmiller.com.


After several years of negotiation and political posturing, 15 countries signed the Regional Comprehensive Economic Partnership (RCEP) trade agreement on November 15, 2020. The RCEP includes several countries from the Southeast Asia and the Pacific region, including Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, Philippines, Singapore, South Korea, Thailand, and Vietnam. RCEP has the distinction, along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), of serving as one of two major-multilateral free trade agreements signed during President Trump’s administration. The United States and India were originally slated to be member of both RCEP and CPTPP but withdrew under Trump and Modi. Perhaps the U.S. might see a renewed interest in becoming a member under its next foreign-trade regime.

The RCEP intends to establish a modern, comprehensive, high-quality, and mutually-beneficial-economic partnership to facilitate the expansion of regional trade and investment while contributing to global-economic growth and development. The agreement also espouses the goal of creating a liberal, facilitative, and competitive-investment environment in the region, that will enhance investment opportunities and promote, protect, and facilitate investment among the parties.

The trade agreement contains 20 chapters, which include several arenas ranging from e-commerce to the movement of goods, services, and persons, as well as enhanced economic and technical cooperation among the members. The formative chapters provide a framework to foster international trade relations by virtue of uniformity and decreased tariffs.

The RCEP will directly impact approximately 2.2 billion people in the Southeast Asia and Pacific region, which is home to nearly 30% of the world’s population. The combined gross domestic product (GDP) of the members countries represents upward of US$26 trillion. At a time of economic uncertainty caused by the COVID-19 pandemic, the RCEP offers a new alliance to increase the level of economic activity for the foreseeable future. Although it is mere speculation to predict its precise impact on the global economy, RCEP may bring about positive change to at least regional-international trade through an increase of approximately $210 billion to member trade revenues and a $500 billion trade increase over the next 10 years.

Global economy pundits suggest that the RCEP and CPTPP will offset global trade deficits stemming from the U.S.-China trade and tariff conflict, but not likely for the U.S. and China. The agreements show promise to bolster the international trade and domestic economies of the member countries by increasing trade efficiencies and combining and expanding resources relative to manufacturing, mining, agriculture, and technology. The agreement further hopes to maximize supply-chain integration across member countries. But it falls short of expectation in key areas concerning intellectual property, labor regulation, state-owned enterprise, and the environment.

For assistance understanding international trade agreements and navigating the nuances and complexities of international trade, please contact Stephen Hanemann.

In the aftermath of hurricanes Laura and Delta, Southwest Louisiana is faced with a widespread reconstruction project the size of which it has not seen in quite a while.  While never afraid to roll up the sleeves and get to work, this time the demand for contractors exceeds the local supply.  Welcoming help from each other is nothing new for our two great states in times of trouble and once again, many Texas based construction companies have begun or are considering getting involved with Southwest Louisiana’s “renovation.”

The purpose of this piece is to remind all involved that construction law in Louisiana has an important distinction from construction law in Texas.  In Texas, a general contractor is not required to have a license to enter a contract for construction or to perform construction activities.  With very few exceptions, the opposite is true in Louisiana.

The Louisiana contractors licensing law is found at La. R.S. § 37:2150-2192.  In general, it requires all contractors performing commercial projects to be licensed by the Louisiana State Licensing Board for Contractors.  The statute contains different licensure requirements for different types of construction primarily based on value of the project or the relative difficulty involved.  For example, a commercial license is required for all commercial projects of $50,000 or more.  A residential license is required for all projects exceeding $75,000.

Within these two broad categories, there are certain subgroups that have varying dollar amount thresholds.  For example, if your commercial project involves any hazardous materials, a license is required if the project value exceeds $1.00, which is to say, you must be licensed.  The same one-dollar threshold is true for mold remediation, which is in particularly high demand following back-to-back hurricanes.

For our friends who are looking for contractors, we encourage you to go to www.lacontractor.org which provides a list of all licensed contractors.  Understandably everyone wants to get back on their feet as fast as possible, but it only takes a second to confirm that the business you may be dealing with is in fact licensed in Louisiana.

To our friends in Texas looking to lend a hand to its neighbors to the east, we likewise encourage you to visit www.lacontractor.org to review the requirements, schedule a test, and get licensed before contracting for or performing any construction work in Louisiana.

It is our understanding that the Louisiana State Licensing Board for Contractors has been inundated with applications from Texas based construction firms seeking licensure for some component of the South Louisiana rebuild.  We understand that due to COVID-19 restrictions, the normal testing locations cannot accommodate the demand for tests and that alternative sites have been offered at various places throughout the state.

For more information on the Kean Miller Construction Law Team, click here.

Title to minerals and royalties in Texas has long been riddled with problems arising from subject-to, reservations-from, and exceptions-to provisions.  Over the years these problems have naturally found their way into the Texas courts, highlighting the critical importance of drafting language to avoid ambiguity and clarify intent.  Emphasis is placed on intent, as unambiguous deeds often are found at the center of litigation. In practice, Texas has always recognized the fundamental public policy of allowing parties the broad freedom to enter into contracts, including mineral conveyances, on terms agreed to by the parties, and Courts will usually enforce the terms as written.  It is also understood amongst oil and gas lawyers that the trend in Texas case law appears to be a gradual transition from a simple mechanical application of the basic rules of deed construction, with an increased focus on the parties’ intent. However, that trend towards increasing recognition of the intent of the parties may be contrived or overstated, as illustrated by the recent Texas Supreme Court case of Wenske v. Ealy, 521 S.W.3d 791, 797 (Tex. 2017) This caseillustrates the importance of clearly stating the intent of the contracting parties to remove doubt and avoid a rigid application of the default rules of deed construction.

Wenske v. Ealy

In the Wenske case, the issue at hand was whether a deed transferred the entire burden of an outstanding non-participating royalty interest to the grantee, or whether the non-participating royalty interest was intended to burden both the grantee and grantor’s reserved interest proportionately.

A quick summary of the facts – in 1988, the Wenskes purchased a tract of land by deed in which the grantors reserved a collective one-fourth (1/4) non-participating royalty interest covering all oil, gas, and other minerals for a term of twenty-five (25) years.  Subsequently, in 2003, the Wenskes conveyed the tract to the Ealys by warranty deed, “subject to” a reservation of an “undivided 3/8ths of all oil, gas, and other minerals in and under and that may be produced from the tract” and included the following clause:

Exceptions to Conveyance and Warranty:

Undivided one-fourth (1/4) interest in all of the oil, gas and other minerals in and under the herein described property, reserved by [the grantors in the 1988 deed] for a term of twenty-five (25) years … together with all rights, express or implied, in and to the property herein described arising out of or connected with said interest and reservation …

In 2011, the Wenskes and Ealys executed oil and gas leases covering the property and in 2013, a dispute arose concerning how the 1/4th non-participating royalty interest would burden their interests.  The Wenskes argued that their reserved 3/8ths mineral interest was not burdened by the 1/4 non-participating royalty interest, while the Ealys argued that each mineral owner bore their proportionate share of the burden. Neither party argued that the 2003 warranty deed was ambiguous.

At the appeals level, in deciding in favor of the Ealys, the Court reasoned that since the 2003 warranty deed was silent as to how the burden of the 1/4th non-participating royalty interest should be allocated, the “default rule” prevails – being that ordinarily a non-participating royalty interest is carved proportionately out of any applicable mineral interest from which it was created.  The Texas Supreme Court, although agreeing with the Appeals Court’s ultimate result, rejected the reasoning, emphasizing that the “Parties’ intent, when ascertainable, prevails over arbitrary rules.”

The Texas Supreme Court focused on the fact that the grant in the 2003 warranty deed was made subject to both the reservation of the 3/8ths mineral interest, as well as the exception to conveyance, which neither party disputed.  Simply put, the 2003 warranty deed conveyed the minerals to the Ealys, reserved 3/8ths of the minerals to the Wenskes, and put the Ealys on notice that the entirety of the mineral estate was subject to the 1/4th non-participating royalty interest (thus avoiding a warranty claim from the Ealys).  The Court reasoned that the deed did not contain language that would contradict the long-standing oil and gas principal that ownership of minerals carries with it the right to receive a corresponding interest in the royalties, and that a “severed fraction of a royalty interest”, like the 1/4th non-participating royalty interest at issue, generally burdens the entire mineral interest from which it was carved out.  As a result, the Court held that under a careful and detailed examination of the 2003 warranty deed, while recognizing the words in the deed their plain meaning and harmonizing all of its parts, it could not be construed to read that the parties intended only the Ealy’s interest be subject to the 1/4th non-participating royalty interest.  In other words, the Court reasoned that the language used in the 2003 warranty deed could not be read as intending to alter the default rule, therefore, the default rule was applied and Wenske and Ealy were both proportionately burdened by their share of the non-participating royalty interest.

The Court purported to reject the idea of simply using a default rule, in this case, the rule being that a non-participating royalty interest generally proportionately burdens the entire mineral interest from which it was carved.  However, despite the Court’s stated goal of emphasizing the parties’ intent over a strict application of the default rule of contractual interpretation, the Court appears to have created uncertainty, as its holding is essentially based on a default rule. In hindsight, if Wenske intended to transfer the entire burden of the non-participating royalty interest to Ealy, the deed should have expressly stated that intent, bypassing any application of the default rule explained above.


The Wenske case illustrates that, although the intent of the parties has been increasingly important in recent years, intent is still often looked at through the lens of long-standing oil and gas rules and principles.  Therefore, when drafting contract language addressing Texas oil and gas rights – lease provisions, deed provisions, reservations, exceptions, etc. – the drafter should be mindful that intent is not always readily ascertained or applied.  Consequently, it remains critical to recognize that if a party wishes to stray from the default rules of construction, those intentions need to be clearly expressed in the document.


Cory Page is an associate in The Woodlands office of Kean Miller, LLP.  His practices focus on upstream oil and gas matters. Cory may be reached at 832.509.2445 or Cory.Page@keanmiller.com.

Many clients ask, “How do I keep my house from going into probate when I die?”  A Transfer on Death Deed (“TODD”) is one way to do this.

What is a TODD?  In 2015, Texas enacted Chapter 114 of the Texas Estates Code, which created and authorized the TODD.  Its main purpose is to allow a property owner, whose main asset is their home, to transfer their interest in the property to a designated beneficiary/beneficiaries, outside of the probate process.  The original statute even provided a statutory form that could be used by property owners and attorneys.

What are the advantages?  First, the TODD allows the owner to transfer title by simply recording the TODD before the owner passes away.  Second, a TODD (like a will or trust) does not trigger any mortgage “due on sale” clause, and it does not affect any homestead or ad valorem exemptions.  Third, the TODD can be revoked at any time during the lifetime of the owner.  This means that the owner can still sell the property during his lifetime.

What are the disadvantages?  The TODD became effective in 2015; however, over the last five years the disadvantages are becoming more and more evident.

First, the statutory form, which was intended to make drafting a TODD easier, has been dropped from the 2019 statutory version, because the poorly written form created more confusion and problems than intended.

Second, the statute provides for a two year “claw back” period which allows unpaid creditors to “claw back” the deceased owner’s property into the probate estate and force a sale in order to pay the creditors.

Third, title companies may refuse to write insurance policies for the property during the two year “claw back” period.  This results in many beneficiaries being unable to sell or refinance the property during the first two years.

Fourth, the TODD overrides any contrary provision in the owner’s Will, even if the Will is signed after the TODD.  The only way to revoke a TODD is by either expressly revoking the TODD, or by revoking the prior TODD and naming a new beneficiary.  The revocation is not effective until the instrument is filed the in the county clerk’s office where the property is located

Fifth, the beneficiary takes the property, subject to all conveyances, encumbrances, assignments, contracts, mortgages, and liens.  In some instances, this can lead to a beneficiary not being able to pay off the lien obligations and forcing either a sale of the property, if possible, or a foreclosure.

Do I still need a Will?  There are several advantages to a TODD, but a property owner needs to be aware of the disadvantages when deciding whether to use one.  A TODD can be an easy way to transfer property to a beneficiary but it should be considered as one tool in the toolbox.  It is often necessary to support that planning with a well written Will to complete your planning.  Be sure to speak with your attorney to identify the best planning options for your circumstances.

The upcoming election and concern regarding potential changes have people asking questions about what they can do in 2020 to blunt the impact of a future change in the tax law.  One strategy for people with significant assets will be to give property away while the current tax laws are in place.

As many already know, the 2017 Tax Cuts and Jobs Act (“TCJA”) dramatically increased the gift and estate tax exclusion amount from $5 million per person to $10 million (adjusted annually for inflation) for gifts being made between December 31, 2017 and January 1, 2026.  On January 1, 2026, the exemption amount will return to $5 million dollars (also adjusted annually for inflation) unless Congress acts to pass a law that either (a) extends the date or (b) increases or decreases the exemption amount.

The scheduled reduction of the gift and estate tax exclusion amount back down to $5 million will have no practical effect for a US citizen that gives away less than $5 million in property because they will not have a taxable estate.  However, for people that believe they will give away more than $5 million, the $10 million exemption currently offered by the TCJA presents a planning opportunity.  Likewise, the $10 million exemption offers a planning opportunity to those concerned that Congress will pass a new law lowering the exemption below $5 million.

Last year, the IRS issued final regulations confirming that the larger $10 million exemption will apply to lifetime gifts made while the TCJA was in place even if the giver dies after it has expired.  For example, if a person has $13 million in assets and dies in 2027 having made no gifts during their life then (under current law without any adjustments for inflation) $8 million ($13m – $5m = $8m) will be subject to a 40% reduction for estate tax.  By contrast, if that same person makes a $10 million dollar gift in 2020, then only $3 million dollars of his/her estate would be subject to the estate tax.

In the example above, the giving strategy stands to save millions in tax liability.  However, there is no “one-size-fits-all” strategy for tax planning and there is a significant amount of planning that should go into how to properly structure and protect the gift.  Be sure to discuss your current plans and estate planning goals with a qualified attorney before implementing any tax planning strategies.

The Small Business Administration (“SBA”) issued an update to its “Frequently Asked Questions for Lenders and Borrowers for the Paycheck Protection Program,” adding question #46 and the response, which is recited below.  For PPP loans of less than $2 million, the borrower will be “deemed to have made the required certification concerning the necessity of the loan request in good faith.”  PPP loans greater than $2 million will be subject to SBA review for compliance. If the SBA concludes that “a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request,” it will seek repayment. Importantly, if the loan is repaid in response to such notification, the SBA will not pursue administrative enforcement or referrals to other agencies in regard to the loan necessity certification.

  1. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?

Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates,20 received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.

Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.