This article is the marvelous work of our current law clerk Kieran O’Day, who will be finishing his stint with us shortly and heading on to clerk with the Supreme Court for the State of Wisconsin!

In a recent post, Attorney Jeremy Klang discussed the Paycheck Protection Program (PPP) loans under the CARES Act. This post will serve as an update regarding how the PPP and the Emergency Injury and Disaster Loans (EIDLs) interact. Head to the Business Law Blog for our other posts regarding COVID-19’s effects on the legal and business worlds particularly as those effects relate to Wisconsin businesses.

Who can apply?

Applicants for both loans must be adversely affected by COVID-19.


·         Businesses with fewer than 500 employees;

·         most non-government, not for profit businesses; and

·         sole proprietors and independent contractors.



·         Businesses with fewer than 500 employees;

·          non-government, not for profit businesses; and

·         sole proprietors, self-employed individuals, and independent contractors

How much are businesses eligible for? 


·         Up to $2,000,000 with up to a $10,000 advance grant.

·         Businesses should receive this grant regardless of the status of their overall application.



·         Up to $10 million, but

·         it is limited to 2.5 times the business’ average total monthly payments for payroll costs during the 1-year period before the date of the loan.


There has been a bit of confusion regarding the amount of the $10,000 businesses will be eligible for. The SBA has not provided official guidance on how it will determine the amount businesses are eligible for.

A since-removed bulletin from the Massachusetts SBA field office stated that the advance will be capped at $1,000 per employee. For example, if this ends up becoming the cap employers with five employees will only get a $5,000 advance. However, there has not been an official announcement from the SBA. We will keep this section up to date as more information becomes available.

What we do know about the advance is that while it does not need to be repaid, it will be subtracted from the forgiveness amount of the PPP if a business receives a PPP loan.   

What are the terms?

An underlying term that affects both of these loans is that the CARES Act prohibits borrowers who obtain both loans from using the loans for the same purposes.


·         Interest rates are 3.75% for for-profit businesses and 2.75% for nonprofits.

·         Loans can be set at a maximum of 30-year terms and payments are deferred for one year.


·         Can be forgiven up to the amount a business spends in the 8-week period following the origination of the loan provided the funds are used for payroll costs, interest on mortgage obligation, rent and utility payments, interest on other debt obligations incurred before February 15, 2020.

·         To have amounts forgiven, the amount spent on non-payroll costs cannot be greater than 25%.

·         The interest rate on any non-forgiven amount is 1%.

·         The remaining loan amount after forgiveness is set at a 2-year term and payments are deferred for six months.

What can the loans be used for?


·         Pay fixed debts

·         Payroll

o   This includes sick leave. It is currently unclear whether the same restriction under the PPP applies regarding FFCRA leave.

·         Accounts payable

·         Other operating expenses that could have been paid but for the pandemic


·         Payroll costs

o   This includes sick leave except for leave for which a credit is allowed under section 7001 of the FFCRA or qualified leave under section 7003 of the FFCRA.

·         Interests on mortgage obligations incurred before February 15, 2020

·         Rent, under lease agreements in force before February 15, 2020

·         Utilities, for which services began before February 15, 2020


Note that the approved uses for each loan generally overlap. Again, the loans cannot be used for the same purposes, so if a business receives both loans it will have to carefully analyze which loan is used for specific purposes.

Required documentation and other information


·         Required Documents

o   Loan Application

o   Tax Information Authorization (IRS Form 4506T)

o   Personal Financial Statement

o   Schedule of Liabilities

·         Personal guarantees may not be required for loans less than $200,000.

·         Collateral is not required for loans less than $25,000.

·         Loan is administered by the SBA.

·         SBA will not require first-year tax returns, will not require other credit could have been obtained elsewhere, and approval can be based on credit score.

·         If funds are available, these loans can be applied for up until December 31, 2020.



·         Required Documentation

o   Certification that the business was in operation on or before February 15, 2020

o   Certification that the business had employees

o   Verification of average monthly payroll costs

·         PPP loans are administered by individual lenders. See this link for a list of Wisconsin lenders.

·         Collateral is not required.

·         Personal guaranty is not required.

·         No requirement for seeking credit elsewhere.

·         If funds are available, these loans can be applied for up until June 30, 2020.

 The SBA is providing much needed financial support for small businesses across the country through the EIDL and PPP. We will continue watching for guidance as it comes down from the federal government. Follow our COVID-19 blog posts on Please contact our offices at 262-785-1800 or visit our website to talk to the business law attorneys regarding the EIDL or PPP or any other business law questions related to COVID-19.

We just received word that late yesterday, the IRS extended the 45 and 180 day deadlines for Section 1031 transactions. It appears that such deadlines which fall between April 1st and July 14th will be extended to July 15, 2020. We have also been alerted that our colleagues at IPX 1031 are working diligently with the IRS requesting that the start date be moved back to January 20th. We will keep you informed!

For now, if you have a Section 1031 in progress, be sure to contact us if you are concerned about making your deadlines, and hopefully we can provide the most current information! Call us at (262)785-1820.

This article is the marvelous work of our current law clerk Kieran O’Day, who will be finishing his stint with us shortly and heading on to clerk with the Supreme Court for the State of Wisconsin!

To help navigate the Families First Coronavirus Response Act (FFCRA), the Department of Labor (DOL) published guidance on April 6, 2020. In our last post, we discussed the ins and outs of the leave provisions of the FFCRA. In this post, we will highlight that guidance. For information regarding the FFCRA, the Paycheck Protection Program under the CARES Act, or Wisconsin’s Safer At Home Order, see our prior posts on the Business Law Blog.


The DOL determined that certain definitions needed further explanation and guidance to fully effectuate the FFCRA. Some definitions, like those for “son or daughter” or “person,” come from other laws like the Family and Medical Leave Act (FMLA) or the Fair Labor Standards Act (FLSA). The DOL further explained the law’s definition of “telework.” The DOL explains that telework is defined broadly under the FFCRA in order to “effectuate the statute’s underlying purposes . . . [and to] encourage employers and employees to implement highly flexible telework arrangements that allow employees to perform work, potentially at unconventional times[.]” The explanation of telework also clarifies that, because of these potentially unconventional work times, employers are still required to compensate employees for recorded hours, including overtime.

Paid Leave Entitlements

The DOL further explains each of the six reasons that an employee may take leave under the Emergency Paid Sick Leave Act (EPSLA). Those explanations are highlighted below:

  • Reason 1: Employee is unable to work or telework because the employee is subject to a federal, state, or local quarantine or isolation order.
  • This applies to broad stay at home orders that affect some or all people (like the one Governor Evers issued in March).
  • The question is “whether the employee would be able to work ‘but for’ being required to comply with a quarantine or isolation order.”
  • Employees cannot use this leave if they do not have work from the employer. This is because regardless of the pandemic, the employee in this instance would not be working anyway.
  • Telework is available under three circumstances: (1) the employer has work for the employee; (2) the employer permits the employee to perform the work from where the employee is quarantined or isolated; and (3) there are no extenuating circumstances that prevent the employee from performing the work.
  • Reason 2: Employee is unable to work or telework because the employee has been advised by a healthcare provider to self-quarantine for a COVID-19 related reason.
  • The healthcare provider must believe that the employee has COVID-19, may have COVID-19, or is particularly vulnerable to contracting COVID-19.
  • The employee is able to telework based on the same three criteria above. Some extenuating circumstances could include serious symptoms that prevent the employee from working.
  • Reason 3: Employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
  • Symptoms include, but are not necessarily limited to, the typical COVID-19 symptoms like fever, dry cough, and shortness of breath.
  • Employee may take paid leave for time spent seeking such a diagnosis “for instance . . . making, waiting for, or attending an appointment for a test for COVID-19.”
  • Employees may not take paid leave for self-quarantine without seeking a diagnosis.
  • Employee may continue to take leave as long as experiencing symptoms, or after testing positive if instructed to self-quarantine.
  • Telework is based on the same criteria as (1) above.
  • Reason 4: Employee is caring for someone subject who is (a) subject to a Federal, State, or local quarantine or isolation order or (b) has been advised by a health care provider to self-quarantine due to COVID-19 concerns.
  • Employee must have “a genuine need to care for the individual.” The individual cannot be someone with whom the employee has no personal relationship. The individual “must be an immediate family member, roommate, or similar person with whom the employee has a relationship that creates an expectation that the employee would care for the person . . . .”
  • Reason 5: Employee needs to take care of employee’s son or daughter if (a) the child’s school or place of care has been closed or (b) the child care provider is unavailable due to COVID-19.
  • This only applies if the employee genuinely cannot work because they are the only person available to care for the employee’s son or daughter. If another co-parent, co-guardian, or the usual care giver is available and the employee can work, the employee may not take leave under this section.

Reason 6, a substantially similar condition specified by the Secretary of Health and Human Services, did not receive further guidance.

The common thread throughout the 5 reasons for taking emergency paid sick leave is that the employer must actually have work for the employee to do before the employee can take leave. The guidance provides a helpful example:

“[I]f a coffee shop closes temporarily or indefinitely due to a downturn in business related to COVID-19, it would no longer have any work for its employees. A cashier previously employed at the coffee shop who is subject to a stay-at-home order would not be able to work even if he were not required to stay at home. . . . [H]is inability to work is not due to his need to comply with the stay-at-home order, but rather due to the closure of his place of employment.”

Paid Leave Rate of Pay & Hours of Leave

The DOL further explains the rate of pay requirements under the FFCRA. Remember, if an employee is taking leave for reasons (1)-(3), the employee is entitled to that employee’s regular rate of pay. If an employee takes leave for reasons (4)-(6), the employee is entitled to not less than 2/3 of the employee’s regular rate of pay. However, as the DOL explains, if the employee’s regular rate of pay is less than the federal, state, or local minimum wage, the employee is entitled to the highest applicable minimum wage for the duration of the employee’s leave. In Wisconsin, there is no difference between the state and federal minimum wage requirements, so employees whose regular rate of pay is lower than $7.25 an hour are entitled to $7.25 an hour for the duration of their leave.

Employees are entitled to hours of leave equal to the average hours the employee works over a two-week period. The DOL  explains that if an employee does not have a regular schedule (for example 9:00 a.m. to 5:00 p.m. Monday through Friday), the employee’s average number of hours worked should be calculated over a six-month period. If the employee has not been employed by that employer for at least six months, the rate is calculated based on the entire time of the employee’s employment.

Employers with fewer than 50 employees

The FFCRA provides that employers that employ fewer than 50 employees may be exempt from providing leave in certain circumstances. The Department clarified that those employers with fewer than 50 employees are exempt when:

  • Such leave would cause the small employer’s expenses and financial obligations to exceed available business revenue and cause the small employer to cease operating at a minimal capacity;
  • The absence of the employee or employees requesting such leave would pose a substantial risk to the financial health or operational capacity of the small employer because of their specialized skills, knowledge of the businesses, or responsibilities; or
  • The small employer cannot find enough other workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services of the employee or employees requesting leave provide, and these labor or services are needed for the small employer to operate at a minimal capacity.

Employers that deny leave based on these criteria are advised by the DOL to retain records that document the reasons for denial. However, those records should merely be retained by the employer and should not be sent to the DOL.

Interaction between EPSLA & EFMLA

Reason for paid leave (5) under the EPSLA and the only eligible reason under the EFMLA overlap; thus those provisions interact and can be used successively. The DOL explains that if an employee is taking paid leave to care for a son or daughter whose school has closed may first take the 10-day leave under the EPSLA first and then take the remaining 10 paid weeks under the EFMLA. This makes sense because taking leave under the EFMLA entitles an employee to 12 total weeks, but only 10 paid. Because the reasons for taking leave overlap, an employee can justifiably get all 12 weeks paid if that employee is eligible for both types of leave.

Temporary Non-Enforcement Period

This portion of this post deviates from the guidance that the DOL issued on April 6, 2020, but it is still important information for employers. On March 24, 2020—roughly a week before the FFCRA leave provisions took effect—the DOL issued a “Field Assistance Bulletin” that updated employees in the Wage & Hour Division on the DOL’s temporary non-enforcement policy.

The bulletin explains that the DOL “will observe a temporary period of non-enforcement of the FFCRA for the period of March 18 through April 17, 2020.” In order to get the benefits of the non-enforcement policy, an employer must make “reasonable, good faith effort to comply with the [FFCRA].” The bulletin goes on to explain what reasonably and in good faith mean in this context. Those terms apply only when all of the following are present:

  • The employer remedies any violations;
  • The violations were not “willful,” which means that the employer knew or should have known that the conduct was prohibited; and
  • The employer certifies in a writing sent to the DOL that the employer will comply with the FFCRA in the future.

If an employer is in violation of the FFCRA and does not meet all of the above requirements, the DOL may take action against the employer. It is important to note that this temporary non-enforcement period only applies to DOL enforcement. Aggrieved employees still have a private right of action against the employer under the FFCRA.

This guidance from the DOL is likely only the beginning of what we can expect from the federal agencies involved in these acts. Follow our COVID-19 blog posts on as we will continue to update as more guidance comes down from the federal and state governments. Please contact our offices at 262-785-1800 or visit our website to talk to the business law attorneys regarding the new leave requirements or any of the new laws centered around COVID-19.

This article is the marvelous work of our current law clerk Kieran O’Day, who will be finishing his stint with us shortly and heading on to clerk with the Supreme Court for the State of Wisconsin!

On March 25, 2020 Wisconsin’s Safer At Home Order (the Order) went into effect. The order is Wisconsin’s version of  a shelter-in-place or stay at home order that other states such as Illinois, California, Michigan, and New York, among others, have enacted in response to the COVID-19 pandemic. The order mandates that Wisconsinites only leave their homes for essential activities, and when they do leave their homes, they should practice social distancing as recommended by the Department of Health and Safety and the Centers for Disease Control. This Order is in effect until 8:00 a.m. Friday April 24, 2020. Notwithstanding the sunset date of this first order, it is possible (and altogether likely) that the State may issue a superseding order extending its duration.

The upshot of this order is that businesses that are not “Essential Businesses and Operations” as defined by the order must cease in person business and convert to telework (work from home) or cease business altogether. By way of this post we hope to inform businesses of their resources to determine whether they are “essential” or what is still available for those deemed non-essential.

Am I an Essential Business or Operation?

While at first glance the Order initial appears to shutter thousands of businesses across the state, a careful reading of the Order shows that many, many businesses may actually qualify as essential and continued operating. Although many businesses may be able to remain open, they will be subject to the modified business practices to slow the spread of COVID-19. Section 13 of the Order provides a list of Essential Businesses and Operations. The Essential Businesses and Operations list includes the other operations already allowed under the Order (Essential Governmental Functions, Healthcare and Public Health Operations, Human Services Operations and Essential Infrastructure) as well as 26 other broad types of businesses and operations.

Notable categories include (1) “Stores that sell groceries and medicine”; (2) “Food and Beverage production, transport, and agriculture,” which keeps the supply chain for (1) in tact; (3) “Restaurants”; (4) “Bars; (5) “Media”; (6) “Financial institutions and services”; (7) “Hardware and supplies stores”; (8) “Critical trades.”; and (9) “Professional services.” These nine categories alone allow businesses such as grocery stores, pharmacies, gas stations, construction companies, law firms, accounting firms, hardware stores, banks, and newspapers and radio stations to remain open beyond only minimal business operations.

Each category has its own restrictions and additional guidelines. For instance, bars and restaurants may only remain open for take-out or delivery services, grocery stores must (like bars and restaurants) close any seating areas for food consumption, and professional services should encourage telework to the extent practicable.

Governor Evers posted an FAQ on the Order, which encourages all business owners or employees to carefully read the Order in its entirety and make a decision based on the Order to determine whether the business is essential. In the event that a business believes it is essential but is not listed on the Order, the Wisconsin Economic Development Corporation (WEDC) provides an inquiry. The WEDC website also includes dropdown definitions of each listed essential business (use the “list” hyperlink above).

 What if I am not essential?

The Order requires any non-essential business (again, carefully check the Order for this determination) to cease in person operations. Despite the mandated cessation, businesses may remain open to perform “Minimum Basic Operations.” Minimum Basic Operations include processing payroll, security, and checking and maintaining inventory. These operations also include those necessary to facilitate work from home capabilities for employees.

What if I want to remain open?

Section 17 of the Order provides enforcement of the Order. It provides that law enforcement agencies, including county sheriff departments, may enforce the Order according to Wisconsin Statute Section 252.25. This statute allows those agencies to enforce the order by fining violators up to $350, imprisoning them up to 30 days, or taking both actions.

What if my county, city, or town has its own order?

To maintain consistency across the state, the Order includes Section 19 “Supremacy.” This section states that the Order supersedes any order inconsistent with it. So, if your locality created its own order that is less restrictive than the State’s, the State’s will apply regardless of a local order.

The business attorneys at Schober, Schober & Mitchell, S.C. are here to guide your business through these strange and confusing times. Stay informed by keeping up with our COVID-19 Response Posts that will be posted on our Business Blog page. If you would like to talk to us regarding the Safer At Home Order or any other business considerations, implications, or issues surrounding the COVID-19 pandemic, please reach out at 262-785-1820 or by visiting our website at

This article is the marvelous work of our current law clerk Kieran O’Day, who will be finishing his stint with us shortly and heading on to clerk with the Supreme Court for the State of Wisconsin!

COVID-19 has caused unprecedented illness across the country and has sparked Congress and federal agencies into swift action. In our last COVID-19 post, we discussed the Safer At Home Order that is in effect across the entire state. In this two post series, we will discuss what happens when employees get sick with, have to take care of a family member because of, or have to care for a child due to a closure because of COVID-19. The Families First Coronavirus Response Act went into effect April 1, 2020 and provides two distinct but related COVID-19 related paid leave provisions. This first post relates to both the Emergency Family and Medical Leave Expansion Act, which is an expansion of the Family Medical Leave Act (FMLA) medical leave and the Emergency Paid Sick Leave Act, which allows for sick leave outside of FMLA leave. Our second post of this series discusses the Department of Labor’s (DOL) guidance on the FFCRA.  By way of these posts, we hope to inform employers and employees of the requirements and effects of these two paid leave provisions.

Generally, both provisions apply to “covered employers.” Covered employers are those that have 500 employees or less. There are potential exemptions to certain employers with fewer than 50 employees and certain reinstatement exemptions for employers with fewer than 25 employees. Employees are defined broadly under the FFCRA as all full time, part time, or contract employees of an employer.

Emergency Family and Medical Leave Expansion Act

 Who does it apply to?

 This section of the FFCRA loosens the requirements for obtaining FMLA leave if it is connected to the COVID-19 pandemic. This section provides leave if:

  • The employee has been employed by the covered employer for at least 30 days; and
  • The “employee is unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.”

There are some important things to note with these two requirements. First, the 30-day employment period is significantly lower than the required employment period under standard FMLA leave. Typically, employees are not eligible for FMLA leave until they have been with the employer for 12 months, who have worked at least 1250 hours in the last 12 months, and at a location where at least 50 employees are employed within 75 miles. The only time related requirement under the FFCRA is that the employee be employed for at least 30 days.

Next, note that this expanded FMLA leave only apples if the employee is unable to work or telework because the employee has to take care of their son or daughter because the son or daughter’s school has closed due to COVID-19. As of this post, public and private K-12 schools in Wisconsin are closed through the expiration of the Safer At Home Order.

Finally, Under the FFCRA, a public health emergency is defined as “an emergency with respect to COVID-19 declared by a Federal, State, or local authority.”

 What do eligible employees receive?

If an employee is unable to work because they are taking care of a child they are eligible for the following benefits:

  • Up to 12 weeks leave, 10 weeks paid with the first two weeks unpaid at
  • Not less than 2/3 of the employee’s regular rate of pay (as defined by the Fair Labor Standards Act (FLSA)) for the number of hours that the employee would otherwise be normally scheduled to work.

Under the FFCRA, the maximum amount of paid leave compensation an employee may receive is $200 per day or a total of $10,000 in the aggregate. It is important to note that the maximum number of weeks an employee can get is 12 weeks, however, if schools reopen or the employee is otherwise able to begin working again, the leave period will conclude.

Do I have to restore my employees who took leave?

The short answer: Probably. Section 104(a)(1) of the FMLA requires employees who have taken leave be restored to the same position they had prior to taking leave, or one that is “equivalent.” An equivalent position is “a job that is virtually identical to the original job in terms of pay, benefits, and other employment terms and conditions.” Implying that Section 104(a)(1) applies in all other circumstances, the FFCRA makes an exception for employers that employ fewer than 25 employees under certain circumstances.

If such an employer is able to show that:

  • The employee took leave under the FFCRA;
  • The employee’s position when leave commenced does not exist due to economic conditions or other changes in operating conditions of the employer that are caused by a public health emergency (COVID-19) during the period of leave;
  • The employer makes reasonable efforts to restore the employee to a position equivalent to the position the employee had when the leave commenced, with equivalent employment benefits, pay, and other terms and conditions of employment; and
  • If the reasonable efforts above fail, the employer makes reasonable efforts during the 1-year contact period if an equivalent position becomes available.

The 1-year contact period begins at the earlier of the end of the public health emergency (COVID-19) or the date 12 weeks after the employee commenced the employee’s leave. It is important to note that the FFCRA is due to expire at the end of 2020, however, the contact period extends for one year regardless of when in the year it occurs.

Emergency Paid Sick Leave Act

 The second leave provision that the FFCRA provides is sick leave completely separate from the leave provided above for COVID-19 related issues.

 Who does this leave apply to?

The leave provided under this section is much broader and provides leave for any employee that is employed by a covered employer under six (not one) circumstances. The six available circumstances are:

  • The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19
  • The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  • The employee is caring for an individual who is subject to an order as described in (1) or has been advised as described in (2);
  • The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions; or
  • The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Note that unlike the FMLA expansion, this leave does not have any minimum employment requirement. Any employee who meets any of the above six circumstances is eligible for the emergency paid sick leave.

What are these employees eligible for?

The FFCRA splits the compensation plan under the emergency paid sick leave depending on the reason for which the employee is taking the leave.

If the employee is taking leave for reasons (1), (2), or (3), the employee is eligible for 80 hours (two weeks) of paid sick time for full time employees or, for part time employees, a number of hours equal to the number of hours that such employee works on average over a 2-week period.

Paid sick time is defined by the FFCRA in the following ways:

  • The rate is calculated based on the employee’s required compensation under sub (B) and the number of hours the employee would otherwise be normally scheduled to work except;
  • Under reasons (1), (2), and (3) the employee is provided the employee’s regular rate of pay provided that it does not exceed $511 per day or $5110 in the aggregate; and
  • Under reasons (4), (5), and (6), no less than two thirds of the employee’s regular rate of pay provided the amount does not exceed $200 per day or $2000 in the aggregate.

Employer Requirements/Prohibitions/Reimbursement

 What do I have to do?

 The FFCRA requires notice of these new employee rights. Think of the standard employment posters employers are required to have displayed. These posters are available through the Department of Labor (DOL) here.

Can I make an employee find a replacement prior to providing them leave?

No. This is expressly prohibited by the FFCRA.

 Can I make an employee use that employee’s other available leave benefits first?

 No. The FFCRA expressly prohibits employers from forcing employees to take other available, accrued leave prior to providing leave under the Act. However, the FFCRA also expressly allows employees to utilize other accrued leave prior to taking emergency paid sick leave, so they may end up with greater than 80 paid hours if they elect to do that.

How will I be repaid for providing leave?

The FFCRA states that employers will be provided tax credits for providing emergency paid sick leave or emergency family and medical leave.  The Internal Revenue Service has issued guidance on what tax credits it will provide and if employers will be eligible for refunds.

 How much notice do my employees need to provide?

The FFCRA states that an employee must provide the employer with a signed statement that supports the need for paid sick leave. That statement must include:

  • The employee’s name;
  • The date(s) for which leave is requested;
  • The COVID-19 qualifying reason for leave; and
  • A statement representing that the employee is unable to work or telework because of the COVID-19 qualifying reason.

While this documentation is required, employers cannot request documentation beyond the above. If employers attempt to require additional documentation such as proof of diagnosis or proof of symptoms, the employer could risk running afoul of the Americans with Disabilities Act, which limits the amount of medical information employers can request or demand from employees.

Navigating the new legislation and all of the regulations and rules that are set to come with it from the DOL and IRS will be confusing and time-consuming, but the attorneys at Schober, Schober & Mitchell, S.C. are staying up to date. Follow our COVID-19 blog posts on as we will continue to update as more guidance comes down from the federal and governments. Please contact our offices at 262-785-1800 or visit our website to talk to the business law attorneys regarding the new leave requirements or any of the new laws centered around COVID-19.

Small businesses have been substantially affected by the rippling effects COVID-19 has had our society and the actions taken by federal, state, and municipal authorities to help minimize the spread of the virus in the United States. In Wisconsin, Governor Tony Evers issued a Safer at Home order on March 24, 2020 which classified some businesses as “essential”, allowing them to continue to operate, while classifying others as non-essential, prohibiting them from continuing operations, with some very limited exceptions. With the economic downturn this virus has caused, even “essential” businesses are hurting, resulting in employee layoffs and the legitimate possibility of businesses defaulting on ongoing overhead obligations such as rent, utilities, or mortgage payments.

To combat the potentially catastrophic effects this sudden economic downturn has had on small businesses, their owners, their employees, and the American economy as a whole, the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act), was enacted into law on March 27, 2020.

The CARES Act is over 880 pages. However, this post will focus only on the portion of the CARES Act that applies to small businesses in the form of small business loans through the Paycheck Protection Program. The intent of this program is to simultaneously assist small businesses by helping them avoid defaulting on ongoing overhead obligations, while also encouraging employers to retain and pay employees—thereby ensuring that employees can continue to support themselves and their families. While a loan may not seem much like a “stimulus,” there is potential for forgiveness of the loan so long as the business receiving the loan meets certain standards regarding employee retention and continued payment of those employees.  The rest of this post will summarize the basic points of how this loan program works for small businesses.

How Does the Loan Work?

  • Who is Eligible? Eligible businesses are those that have less than 500 employees, and also includes very small businesses, such as sole proprietors, independent contractors, and self-employed individuals. The business must also certify to the lending bank in writing that the uncertainty of current economic conditions makes the loan necessary to support its ongoing operations, acknowledge that the loan funds will be used to retain workers and maintain payroll, or make mortgage payments, lease payments, and utility payments. Additionally the business cannot get multiple Paycheck Protection Program loans and must make a certification to that effect to the lending bank.
  • Where does my business get the loan? Local banks/financial institutions will be the sources of the funds. The funds are authorized under the SBA 7(a) program, which is typically used for startups, business acquisitions, and other SBA funded loans. Remember, the SBA does not pay the money directly to the business, they just provide a guarantee to the bank up to a certain percentage of the loan amount. In this crisis, for loans granted under the Paycheck Protection program, the loans are going to be backed 100% by the SBA (up from typically lower percentages). This means that if the business defaults on the loan, the SBA will reimburse the bank for their loss.
  • How much interest will my business be charged? Interest rates cannot exceed 4%. Subsequent regulations have been issued since the original posting of this article. The interest rate on PPP loans will be 1%. 
  • How much of a loan can my business get? The maximum loan amount is $10 Million, but will be limited to 2.5 times the business’ average total monthly payments for payroll costs during the 1 year period before the date of the loan. If the business hasn’t been in business for a year, the loan amount is limited to 2.5 times the average monthly payroll costs incurred by the business during the period of January 1, 2020 through February 29, 2020.
  • What is included in “payroll costs” for determining how much my business can borrow?
    • Salary, wages, commission or similar compensation (except to the extent that an employee’s salary, wage or commission exceeds $100,000.00 annually, determined based on prorating the amount that would be paid from February 15, 2020 to June 30, 2020);
    • Payment of cash tip or equivalent;
    • Payment for vacation, parental, family, medical, or sick pay (except for those amounts paid for paid leave under the Families First Coronavirus Response Act, because those amounts are credited against an employer’s payroll tax liability);
    • Allowance for dismissal or separation;
    • Payment required for provision of group health benefits, including insurance premiums,
    • Payment of any retirement benefit;
    • Payment of state or local tax assessed on the compensation of employees; and
    • Sum of payment of any compensation to any sole proprietor or independent contractor not to exceed $100,000.00 per year prorated over the period of February 15, 2020 to June 30, 2020.
    • Subsequent regulations have been issued since the original posting of this article. Independent Contractor pay is not included for purposes of determining payroll costs.
  • What can the loan funds be used for?
    • payroll costs (as defined above);
    • Payments of interest on mortgage obligations but NOT principal incurred prior to February 15, 2020;
    • Rent obligations for obligations incurred prior to February 15, 2020;
    • Utility costs for utility service beginning prior to February 15, 2020;
    • Interest on any other debt obligations that were incurred prior to February 15, 2020.
  • Are personal guarantees required and will collateral be required? The SBA will not require any personal guarantee from the business owner. This does not mean that the particular bank will not require a personal guarantee or require the pledging of collateral!
  • Aren’t there fees with SBA loans? There is no (or to the extent possible) fee for the SBA loan;
  • Will there be a penalty if my business pays back the loan early? There is no prepayment penalty;
  • How long does my business have to pay it back? The loan amortization will be over no longer than a 10 year period if the loan is not forgiven. Subsequent regulations have been issued since the original posting of this article. The loan will be due in 2 years with monthly payments not due for six (6) months. 

How would loan forgiveness work?

Businesses in financial trouble due to the COVID-19 crisis may be thinking, why would I take on more debt right now? A critical part of the Paycheck Protection program is eligibility for loan forgiveness for the loans issued under this program. This may be an extremely useful resource for qualifying businesses wishing to take advantage of this program. However, businesses contemplating obtaining the loans should make sure they understand what they are getting into prior to taking on the loan.

  • How much of the loan can be forgiven? A business seeking a Payroll Protection Program loan can have its loan forgiven up to the amount (but not exceeding the loan amount) equal to costs incurred and payments made by the business during the period starting with the date the loan is made and 8 weeks after that, for the following expenses:
    • payroll costs (as defined above);
    • payment of interest on a mortgage obligation (the mortgage must have been in place before February 15, 2020);
    • payment of rent (under a lease arrangement entered into prior to February 15, 2020); and
    • payment of utilities (service must have begun prior to February 15, 2020).
    • Note: the initial SBA application for Paycheck Protection Program loans indicates that “due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.”
  • Is the forgiveness of debt taxable income? If there is loan that is forgiven, it is NOT included in gross income for income tax purposes (forgiveness of debt generally is taxable as income).
  • Are there limits on the forgiveness? There are limits/standards that must be met for the business to receive forgiveness on the loan for payment of the above amounts:
    • Employee retention: the amount of forgiveness for the above payments will be reduced if the business has fewer full time equivalent employees during the 8 week period after the loan is issued compared to the business’ average monthly full time equivalent employees during the period of February 15, 2019-June 30, 2019, or, if the business wasn’t open during that period, compared to the average number of full time equivalent employees per month during the period of January 1, 2020 through February 29, 2020. It is not clear from the Act what the SBA defines as a “full time employee equivalent”, as well as how part time employees fit within that definition. The SBA will need to issue guidance on these definitions in its regulations that are forthcoming.
    • Employee Compensation. The amount of forgiveness will also be reduced by every dollar of pay reduction of more than 25% of the employee’s normal wages/salary paid during the most recent full quarter that the employee was employed before the covered period. (For employees making $100,000.00 or more annually, the reduction would only occur to the extent those employees had their pay reduced less than 75% of $100,000.00).
    • Tipped workers: The Act states a business with tipped employees “may receive forgiveness for additional wages paid to those employees”. Unfortunately, this language is far from clear on how this will work. Does this mean that the business must pay an equivalent to 75% of average tips to those tipped employees in order to avoid reduction in loan forgiveness? Further guidance from the SBA will be needed on this point in upcoming regulations.
    • Exemption for Re-hires. The Act also allows for a grace period for the business to get employee employment levels and employee compensation levels to a position where they would be eligible for the forgiveness without regard to the reductions described above. If the employee reduction and/or the compensation reduction occurs between February 15 and April 26, 2020, so long as the business has eliminated the reduction in employment of employees or reduction in pay by June 30, 2020 then there shall not be a reduction in the loan forgiveness. This allows businesses that may have already laid off employees or reduced employee pay to get employment levels and pay levels back up to appropriate levels and still qualify for forgiveness.
    • Subsequent regulations have been issued since the original posting of this article. Not more than 25% of the forgiveness can be based upon non-payroll costs. 

Final Thoughts

  • The Payroll Protection Program under the CARES ACT provides small businesses the possibility of avoiding defaulting on mortgage payments, rent, and utility obligations, while also ensuring that their employees continue to get paid. Overall, it is a great help for both businesses and employees alike during this extremely difficult time.
  • However, businesses should understand that this program is done via a loan. Businesses should not go into the loan process expecting to automatically get loan forgiveness. There is risk that they may not qualify for the forgiveness (or may not qualify for 100% forgiveness), and therefore will have debt to pay back, though it will be over a 10 year period at a maximum of 4% interest.
  • Businesses will have to take extra care with their record-keeping to ensure that that they maximize their likelihood of obtaining loan forgiveness as these records will be heavily scrutinized in order for businesses to obtain that forgiveness. Additionally, businesses should understand that detailed records of the business, especially related to employees, must be kept in order to qualify for forgiveness.
  • Because some provisions are not entirely clear and need further explanation from the SBA, there may not be answers on these questions before a business needs the funds. If businesses take the plunge with a loan, they should understand the risk that they may not necessarily qualify for loan forgiveness. The subsequent regulations may have impact on eligibility.  Further, banks may not necessarily be able to provide substantial guidance on forgiveness eligibility until those regulations are issued. Businesses getting loans before regulations are issued should keep this in mind and understand the risk.
  • With the initial SBA application and now issued regulations on the PPP indicating the loans are payable over 2 years, and that not more 25% of the forgiven amount can be for non-payroll costs, businesses should understand how much they may have to pay back, the monthly payment amounts if that were the case, and also determine what their anticipated payroll and non-payroll costs will be, so they can more accurately project the extent of forgiveness they will receive. If they will not receive complete forgiveness, businesses should determine how the projected monthly payments will affect cash flow.
  • Practically speaking, this Act doesn’t change the fact that some businesses’ operations are substantially or completely reduced due to Stay at Home orders. As such, there may not be any work for employees or the same level of work for those employees. With that being said, the Payroll Protection Program may allow businesses to keep paying employees even if they are not working so the business can qualify for forgiveness for other overhead costs necessary to be paid to keep the business in business. Business owners will have to make the decision as to whether they wish to continue to make payments to those employees despite no or reduced services being provided in order to obtain loan forgiveness.

The attorneys at Schober Schober & Mitchell, S.C. are keeping up to date on the quickly changing laws regarding the COVID-19 crisis. Overall, we feel that the Payroll Protection Program under the CARES Act will be of benefit to many of our small business clients and hope that this will help all businesses weather this storm. We are available and happy to assist businesses who have questions on how they may be able to take advantage of this Paycheck Protection Program, as well as compliance with the other flurry of laws that have been passed recently related to COVID-19. Contact me, Attorney Jeremy M. Klang at and any of our business attorneys at 262-785-1820, or by visiting our website at

This article, appearing in the January 9, 2019 Business Law Blog of the State Bar of Wisconsin, is brought to you through the consent of the following author, together with the permission of the Business Law Blog of the State Bar of Wisconsin. We are pleased to bring this article of significant importance to you from such an expert. We hope you enjoy this!

Thomas J. Nichols, Marquette 1979, is a shareholder with Meissner Tierney Fisher & Nichols S.C., Milwaukee, where he focuses his practice on business and tax law. 


James W. DeCleene,Marquette 2015, is an attorney with Meissner Tierney Fisher & Nichols S.C., Milwaukee, where he focuses his practice on business and tax law.

New 2017 Wisconsin Act 368 allows S corporations and partnerships to be taxed at the entity level – meaning potential tax savings for their owners. Thomas J. Nichols and James W. DeCleene discuss the act and its tax implications.

Included among the bills just passed by the Wisconsin Legislature is new 2017 Wisconsin Act 368(Act), sponsored and championed by Sen. Howard Marklein, a certified public accountant.

This Act contains provisions that allow pass-through entities – including S corporations, partnerships, limited liability companies, and other entities treated as partnerships under the Internal Revenue Code – to elect to be taxed at the entity level.

Why would people want to do that?

Because under the Tax Cuts and Jobs Act, the deduction of state income, property, and other taxes imposed at the individual level is limited to a maximum of $10,000 per return – but taxes imposed on pass-through entities are deductible at the entity level, and therefore reduce income passed through to the shareholders or other owners, thereby effectively making those taxes deductible.1

Net Savings

The economics work like this: Taxpayers subject to the top individual income tax rate of 7.65 percent in Wisconsin applicable to taxable income over $336,200 on a joint return and $168,100 on a separate return for calendar year 2018 are likely to have property taxes and income taxes on their nonpass-through income of at least $10,000. Thus, the state income taxes that they pay on their income from pass-through entities are effectively nondeductible.

These new provisions allow pass-through entities to elect to be taxed at the entity level at a flat rate of 7.9 percent (the Wisconsin corporate income tax rate).2

You probably see where this is going. A nondeductible 7.65 percent tax costs precisely that – namely 7.65 percent. However, a federal top-bracket owner of a pass-through entity that qualifies for the new 20-percent (federal only) deduction for qualified business income under section 199A of the Internal Revenue Code is subject to a top federal rate of 29.6 percent ([1 – 20%] X 37% = 29.6%).

This means that a deductible 7.9 percent tax costs only a net 5.56 percent ([1 – 29.6%] X 7.9% = 5.56%) after you take into account the deduction for state income taxes at the entity level.

If, for whatever reason, the business owner is not entitled to the 20-percent section 199A deduction, the overall net tax cost of the 7.9-percent state income tax actually goes down to approximately 4.98 percent ([1 – 37%] X 7.9% = 4.98%).

Bottom line: Profitable Wisconsin business owners could achieve after-tax savings of approximately 2.09 percent (or almost 2.7 percent for businesses that do not qualify for the section 199A deduction).

Tax Treatment

The actual tax effects of this election are specified in the Act.

As noted above, a flat tax of 7.9 percent is imposed at the entity level.3 Income, losses and deductions that would otherwise be passed through to S corporation and partnership owners are excluded for purposes of determining their taxable income at the individual level for Wisconsin.4

However, the basis in their respective ownership interests (stock in the case of S corporations and partnership interests for noncorporate entities) are still increased and decreased to reflect income or loss at the entity level, the same as they would be if no election had been made.5 And the distribution of “earnings and profits” accumulated during years in which this election is in effect would not be treated as dividends for Wisconsin (or federal) tax purposes.6

Net income and situs of income for entities making this election is computed and determined as if no election had been made.7 It is just taxed at the entity level, rather than at the owner level.8 Thus, an S corporation or partnership owned 100 percent by Wisconsin resident shareholders or partners would be taxed on 100 percent of its entire net income, even if some of that net income was apportioned or otherwise allocated out-of-state.

However, for example, an S corporation with two shareholders – a resident shareholder owning 60 percent of its stock and a nonresident shareholder owning the other 40 percent of its stock – and that has 90 percent of its income apportioned or allocated out-of-state would pay tax only on 64 percent of its income (60% X 100% + 40% X 10% = 60% + 4% = 64%).

Since the net income of S corporations and tax partnerships electing under these new provisions will be taxed at the entity level, they are eligible to credit against that tax the net income or franchise taxes paid at the entity level in other states, as well as individual income taxes paid at the entity level on composite returns filed in other states, to the extent such credited taxes are attributable to shareholders or partners who are Wisconsin resident individuals, estates, or trusts.9

Similarly to individuals, this credit is subject to an overall cap based upon the 7.9 percent tax rate imposed on the corresponding income.10

Significantly, such income, franchise, and composite taxes paid by electing S corporations or partnerships should not qualify for credit at the individual shareholder or partner level anyway, because the corresponding income will now not be reported at the individual level for Wisconsin tax purposes.11

It should also be noted that only resident individuals, estates or trusts are eligible for such credits in the first instance.


Although the election is likely to be quite beneficial for numerous Wisconsin businesses, there are circumstances where it might not be advisable.

For example, S corporations and tax partnerships where a substantial amount of the pass-through income is subject to Wisconsin tax at substantially less than the top 7.65 percent rate might not benefit enough from the deductibility in order to offset the cost of having to pay tax at the higher 7.9 percent rate.

Similarly, it may not be advisable where S corporations, partnerships, or their respective shareholders and partners are eligible for credits, such as the manufacturing and agriculture credit, which reduce their effective Wisconsin tax rate.13

The only credits allowed to S corporations and partnerships electing under these new provisions are the credits for franchise, income, and composite taxes described above.14

Also, S corporations and partnerships with substantial out-of-state owners might not benefit if those owners are not allowed a corresponding exclusion or credit at the individual level in their home state for the income tax that is now being paid at the entity level here in Wisconsin.

The election may not be typically advisable for S corporations and partnerships that are experiencing losses, because there would be no deductible state taxes to begin with, and such losses would effectively be wasted.15

However, as explained below, this election may be made on or before the due date or extended due date of the relevant S corporation or partnership return.16 Thus, taxpayers and their accountants will have the opportunity to determine whether the election is beneficial and worth the extra compliance costs before committing to this regime. Taxpayers can even revoke the election within this same timeframe if they subsequently change their mind.17


The election procedure itself mirrors the existing election for S corporations to opt out of “tax-option” status entirely for Wisconsin purposes only.18 However, it must be made each year, and will presumably be in some form of check-off or attachment on the Wisconsin return.

Just as with the existing Wis. Stat. section 71.365(4)(a) “opt out” election, this new election will also require the consent of persons owning more than 50 percent of the shares for an S corporation and more than 50 percent of the capital and profits for a tax partnership, though any such consent should be able to cover some or all future years.

The new election is available for S corporations starting with taxable years beginning on or after Jan. 1, 2018. Partnerships will only be eligible for taxable years beginning on or after Jan. 1, 2019.19 Thus, some year-end tax planning for S corporations now may be appropriate, but not essential given the optional nature of this relief.

Summary: A New Opportunity

Lawyers and accountants should be apprising their S corporation and tax partnership clients of this new opportunity.

For profitable businesses, the after-tax savings could be significant. S corporations are eligible immediately for 2018 taxable years; partnerships are not eligible until next year.


1 I.R.C. §164(b)(6); H.R. Rep. No. 115-466, at 260 n.172 (2017) (Conf. Rep.) (“[T]axes imposed at the entity level, such as a business tax imposed on pass-through entities, that are reflected in a partner’s or S corporation shareholder’s distributive or pro-rata share of income or loss on a Schedule K-1 (or similar form), will continue to reduce such partner’s or shareholder’s distributive or pro-rata share of income as under present law.”).

2 Wis. Stat. §§ 71.365(4m)(a), 71.21(6)(a)

3 Wis. Stat. §§ 71.365(4m)(a), 71.21(6)(a)

4 Wis. Stat. §§ 71.05(10)(dm), 71.36(1), 71.365(4m)(b), 71.21(6)(b)

5 Wis. Stat. §§ 71.365(1)(a), 71.21(6)(d)4

6 Wis. Stat. § 71.05(6)(a)14

7 Wis. Stat. §§ 71.365(4m)(d)1., 71.21(6)(a)

8 Wis. Stat. §§ 71.365(4m)(b), 71.21(6)(b)

9 Wis. Stat. § 71.07(7)(b)3

10 Wis. Stat. § 71.07(7)(c)

11 Wis. Stat. § 71.07(7)(b)1

12 Id.

13 See, e.g., Wis. Stat. § 71.07(5n)

14 Id.

15 Wis. Stat. §§ 71.05(10)(dm), 71.365(4m)(b), (d)3., 71.21(6)(b), (d)2

16 Wis. Stat. §§ 71.365(4m)(a), 71.21(6)(a)

17 Wis. Stat. §§ 71.365(4m)(c), 71.21(6)(c)

18 Compare Wis. Stat. section 71.365(4)(a), with Wis. Stat. sections 71.365(4m)(a) and 71.21(6)(a).

19 2017 Wisconsin Act 368 § 21(1)​

This article, appearing in the January 18, 2019 Business Law Blog of the State Bar of Wisconsin, is brought to you through the consent of the following author, together with the permission of the Business Law Blog of the State Bar of Wisconsin. We are pleased to bring this article of significant importance to you from such an expert. We hope you enjoy this!

Michael J. Lokensgard, U.W. 1993, is a shareholder with Godfrey & Kahn, S.C., in Appleton, where he practices corporate, public finance, and commercial real estate law.



The Tax Cuts and Jobs Act of 2017 contained a powerful new tax incentive, albeit one of limited duration, intended to funnel capital to distressed communities. Michael Lokensgard discusses the details of investing realized capital gains into Qualified Opportunity Zones – census tracts that meet the U.S. Treasury Department’s definition of “low income.”

Passed in the waning days of 2017 and taking effect Jan. 1, 2018, the Tax Cuts and Jobs Act made significant changes to provisions of the Internal Revenue Code dealing with the treatment of capital gains.

On the one hand, the Act took away the ability to defer capital gains on the sale of tangible and intangible personal property by limiting capital gain deferral under Section 1031 to gains from the sale of real property only.

On the other hand, the Act established a new set of incentives for the investment of realized capital gains into “Qualified Opportunity Zones” — census tracts that meet the U.S. Treasury Department’s definition of “low income.”

According to the Treasury Department listing, there are 120 designated Qualified Opportunity Zones spread throughout the State of Wisconsin.

Requirements of the Opportunity Zone Program

Under the new program, a taxpayer may, within 180 days after recognizing a capital gain, reinvest that gain into a Qualified Opportunity Fund (QOF). Under the program’s proposed regulations, only long-term capital gains appear to be eligible to be reinvested in a QOF. The amount of gain which the taxpayer seeks to defer must be invested as cash.

The QOF may be organized as a corporation or partnership for tax purposes, but may not be a disregarded entity.

The QOF then invests in a Qualifying Opportunity Zone Business (QOZB), either directly or through an intermediate entity.

A QOZB is a business that meets these requirements:

  • Substantially all of the QOZB’s owned or leased property is “Qualified Opportunity Zone Business Property,” which is defined as tangible property (i) purchased after Dec. 31, 2017, and (ii) the use of which must occur within the Qualifying Opportunity Zone.

    In addition, to be considered as Qualified Opportunity Zone Business Property, the QOF must either commence the use of the property at the same time that the QOF commences operation, or the QOF must substantially improve the property within 30 months of the property’s acquisition by the QOF.

  • At least 50 percent of the QOZB’s income is derived from the “active conduct of a trade or business” within the Qualified Opportunity Zone.
  • A substantial portion of any of the QOZB’s intangible property is used in the conduct of business with the Qualified Opportunity Zone.
  • Less than five percent of the average of the aggregate unadjusted basis of the QOZB’s property is attributable to “nonqualified financial property,” as that term is defined in Section 1397C(e) of the Internal Revenue Code.

At least 90 percent of the QOF’s assets much be invested in a QOZB. The 90 percent holding requirement is tested every six months, including at the end of the QOF’s tax year.

If the 90 percent requirement is not met, the QOF is subject to monetary penalties. As is the case with many other tax incentives, certain businesses, such as public private golf courses, massage parlors, tanning salons, gambling facilities, racetracks, and liquor stores are not eligible QOZBs.

Benefits of the Opportunity Zone Program

Assuming that the alphabet soup of program’s requirements can be met, the taxpayer can reap significant benefits, including:

  • deferral of capital gains tax on the taxpayer’s original invested capital gain until the earlier of the date that the QOF investment is sold or Dec. 31, 2026;
  • if the QOF investment is maintained for at least five years, the taxpayer can permanently exclude a portion of the original invested capital gain from tax, which would effectively result in a 10 percent gain reduction if the QOF investment is held for at least five years, and a 15 percent gain reduction if the QOF investment is held for at least seven years; and
  • if the QOF investment is maintained for at least 10 years, the taxpayer can increase the basis in his or her interest in the QOF to 100 percent of its fair market value on the date of sale, effectively exempting the capital gain from the ultimate sale of the QOF interest from tax.

Taxpayers Should Move Quickly

Because of the various deadlines and required holding periods, taxpayers wishing to take full advantage of the new program will have to move quickly. Capital gain needs to be initially invested in a QOF within 180 days of recognition.

In order to receive the benefit of the reductions in capital gains tax noted above, the taxpayer must invest by Dec. 31, 2019 (to be eligible for the 15 percent reduction), or by Dec. 31, 2021 (to be eligible for the 10 percent reduction).

In order to receive the benefit of the complete exemption from capital gains tax for the sale of a QOF investment maintained for at least 10 years, the investment must be made by Dec. 31, 2028, which is the sunset date of the program.

Comparing Benefits with Traditional Deferral

In two important respects, the program provides a comparative benefit to the more traditional method of capital gain deferral under Section 1031 of the Internal Revenue Code.

First, while 1031 exchanges require that the entire value of the relinquished property be reinvested, a taxpayer need only invest the actual amount of his or her capital gain in a QOF, meaning that gain deferral is available for a potentially much smaller investment.

Second, while 1031 exchanges are now limited to exchanges of real property, almost any capital gain, whether from real or personal, tangible or intangible property, may be invested in a QOF.

Proposed Regulations

Proposed regulations for the Opportunity Zone program were issued Oct. 19, 2018, and in many respects, were extremely favorable to investors. While the statute required that the IRS promulgate rules for the certification of COFs, the proposed regulations indicate that QOFs may self-certify (unlike, for example, the much more rigorous certification requirements for community development entities under the New Market Tax Credit program).

The regulations also allow a QOF up to 31 months to actually deploy funds by investing in a Qualified Opportunity Zone, while at the same time providing immediate gain deferral for funds invested in the COF.

By defining “substantially all” for purposes of determining the amount of a QOZB’s owned or leased property which must be located within a Qualifying Opportunity Zone as 70 percent, the regulations permit a QOZB to hold significant assets outside of a Qualified Opportunity Zone.

Unresolved Issues

One of the biggest issues not resolved in the proposed regulations is the definition of “active conduct of a trade or business” for purposes of determining whether a business qualifies as a QOZB.

“Active conduct of a trade or business” has no single definition within the Internal Revenue Code. For example, in the context of tax-free spinoffs, “active conduct of a trade or business” requires that a taxpayer be engaged in active and substantial management and operational functions.

By contrast, in the context of New Market Tax Credits, “active conduct of a trade or business” requires only that the taxpayer reasonably expect to generate revenues within a certain period following an initial investment.

Further complicating matters, the Internal Revenue Code provisions dealing with enterprise zones, which are the source for several other definitions applicable to the Opportunity Zone program, specifically exclude the rental of residential real estate from the definition of “qualified business.”

Given the purposes of the Opportunity Zone program, utilizing the New Market Tax Credit definition of “active conduct of a trade or business” would make greater sense, as it would facilitate redevelopment by permitting the development and leasing of property on a triple net basis, which would likely not be permitted using a more restrictive definition.

Additionally, as the creation of affordable housing is a major issue for many low-income areas, it would be odd to exclude residential leasing from the permissible business functions of a QOZB. The final rules, when issued, will hopefully provide some further guidance with respect to this issue.

Conclusion: A Powerful New Tool

The Opportunity Zone program is a powerful new tool for the deferral and potential reduction of capital gains while incentivizing investment in the most distressed areas of the country.

Because the proposed regulations are so flexible, however, the degree to which investments made under the program will actually target the low-income communities that they are intended to benefit remains to be seen.

This article, appearing in the March 20, 2019 Business Law Blog of the State Bar of Wisconsin, is brought to you through the consent of the following author, together with the permission of the Business Law Blog of the State Bar of Wisconsin. We are pleased to bring this article of significant importance to you from such an expert. We hope you enjoy this!

Emory Ireland, Stanford 1969, is a partner in the Milwaukee office of Foley & Lardner LLP, where he practices banking and finance law.

Two recent cases held that a description of collateral in a financing statement was inadequate, because it referred to a description of collateral in a separate document, but did not attach that document.

This is an important issue, because failure to include an adequate description of collateral in a financing statement can leave a creditor’s security interest unperfected, making it vulnerable to the claims of subsequent secured parties who file complying financing statements and to avoidance by a trustee or debtor in possession if the debtor goes into bankruptcy.

The result can be substantial financial losses, which can run into the millions of dollars.

At Issue: The Description of Collateral

The First Circuit Court of Appeals recently held, in a case decided under the former version of Article 9 of the Uniform Commercial Code, that the description of collateral in a financing statement was inadequate when it referred to a security agreement attached as an exhibit, and the security agreement did not describe the collateral except by reference to another document which was not attached to the security agreement or the financing statement.1

It is important that this case was decided under the former version of article 9, because article 9 then required a financing statement to contain “a statement indicating the types, or describing the items, of collateral.” The First Circuit reasonably concluded that the financing statement at issue did not meet that standard.

The result should be different under the current version of article 9, which provides that a collateral description is sufficient “if the identity of the collateral is objectively determinable.”

The identity of collateral is objectively determinable if it is contained in a separate document that is identified in the financing statement, even if that document is not attached and does not appear in the public record.

Notice Filing

Article 9 establishes a system of notice filing, and the financing statement is certainly enough to put third parties on notice that there may be security interest in the assets of the debtor, even if it refers to a separate document for the description of collateral. It would easy enough for any interested third party to ask the debtor for a copy of the document that describes the collateral, just as the third party would have to inquire further to ascertain the amount of the debt and other important information that is not required to be included in a financing statement.

The official comment to section 9-502 clearly describes the system of notice filing:

  1. Notice Filing. This section adopts the system of “notice filing.” What is required to be filed is not, as under Pre-UCC chattel mortgage and conditional sales acts, the security agreement itself, but only a simple record providing a limited amount of information (financing statement)….

The notice itself indicates merely that a person may have a security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs. Section 9-210 provides a statutory procedure under which the secured party, at the debtor’s request, may be required to make disclosure. However, in many cases, information may be forthcoming without the need to resort to the formalities of that section.

Unfortunately, the Bankruptcy Court for the Central District of Illinois has held that the description of collateral in a financing statement was not adequate even under the current version of article 9 when it referred to the collateral described in a separate security agreement and did not attach a copy of the security agreement.2

I believe that case was wrongly decided for the reasons indicated above, and it is currently on appeal to the Seventh Circuit.

This is an important issue. Stay tuned for further developments.


1 In re the Financial Oversight and Management Board for Puerto Rico, —-F.3d—-, 2019 WL 364029 (2019)

2 In re 180 Equipment, LLC, 2018 WL 4006294 (Bankr. C.D. Ill. 2018). Foley & Lardner LLP represents the secured party in the appeal to the Seventh Circuit of the decision in this case.

This article, appearing in the May 7, 2019 Business Law Blog of the State Bar of Wisconsin, is brought to you through the consent of the following author, together with the permission of the Business Law Blog of the State Bar of Wisconsin. We are pleased to bring this article of significant importance to you from such an expert. We hope you enjoy this!


Steve Mroczkowski, Chicago Kent 2010, is an attorney with Carlson Dash, Pleasant Prairie, where he concentrates his practice in commercial and business litigation, construction law, mechanic’s liens, and bond claims. 

A recent Court of Appeals case drove home a point: That choice of law provisions matter. Steve Mroczkowski discusses the case, which also proves the importance of front-end negotiations.

The Court of Appeals for the Seventh Circuit recently drove home a point that lawyers tell clients all the time when drafting contracts: choice of law provisions matter.

They can matter immensely, in fact, as in the case of Sanchelima International, Inc. v. Walker Stainless Equipment Co., LLC1 – to the tune of $778,306.70.

In Sanchelima, the court was required to apply Wisconsin law that – while established in 1978 and contrary to a majority of others states’ view on limitations of consequential damages – remained binding Wisconsin precedent.

Sanchelima v. Walker: Background

Sanchelima sued Walker for an alleged breach of an exclusive distribution agreement. Pursuant to the contract, Sanchelima would be Walker’s exclusive distributor of dairy silos in 13 Latin American countries. Walker agreed not to sell silos to third parties in those countries. However, Walker did exactly that – and Sanchelima sued.

The contract contained certain limited remedies provisions through which (i) Sanchelima’s remedies against Walker were limited to the amounts paid under purchase orders and, (ii) Sanchelima waived any liability for consequential damages.

It also stated that Wisconsin law would apply.

Walker claimed that the limited remedies provisions were fatal to Sanchelima’s claims. Sanchelima argued that the limited remedies provisions violated UCC §2-719 and its Wisconsin corollary, Wis. Stat. section 402.719, which provides:

(2) Where circumstances cause an exclusive or limited remedy to fail of its essential purpose, remedy may be had as provided in chs. 401 to 411.

(3) Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.

Wisconsin’s Dependent Approach Still the Law

Wisconsin follows the dependent approach when analyzing contractual limited remedy provisions. A minority of jurisdictions follow this approach, and there has been a trend away from it. However, it is still the law in Wisconsin.

Under the dependent approach, if a litigant proves that a limited remedy fails of its essential purpose under UCC §2-719, any accompanying disclaimer of consequential damages is per se unconscionable.

The district court held that because the limited remedy provisions in the contract provided, essentially, no relief for Walker’s breach of the exclusivity provision, it failed of its essential purpose – and was thus unconscionable. Therefore, the court could consider other UCC remedies – i.e., consequential damages for lost profits (which was specifically disclaimed in the voided contract provisions). After a bench trial, the court entered judgment against Walker, and Walker appealed.

A Try for the Independent Approach

Walker asked the Seventh Circuit to review the Wisconsin Supreme Court’s decision in Murray v. Holiday Rambler, Inc.2 and deviate from it. In the alternative, Walker asked the court to certify a question to the Wisconsin Supreme Court so it could revisit its decision in Murray, given the modern trend away from the approach adopted by the Murray court.

Walker wanted – and would likely have benefited from – a shift to the more-popular independent approach to contractual limited remedy provisions.

Under this approach, even if a limited remedy fails of its essential purpose, a consequential damages disclaimer is not automatically unconscionable. The litigant asserting so must still prove procedural and substantive unconscionability to invalidate it.

Thus, Sanchelima would have had to demonstrate not only that the limited remedy provision in the contract at issue was substantively no good and deprived it of a remedy against Walker, but also that something procedurally (during contract negotiations or the like) was unconscionable. This would have put more of an onus on Sanchelima, and, while we do not know, may have resulted in a different case outcome.

Trendy is not Unsettled

However, the Seventh Circuit did not need to go there. Generally, federal courts sitting in diversity can decide cases involving unresolved issues of state law by predicting how a state’s high court would rule.

Because Murray is good law in Wisconsin, the issue presented to the Seventh Circuit was not unresolved. It may be contrary to a current and recent national trend, but the Court noted, it was not unsettled.

The court also could not (as demanded by Walker) certify a question to the Wisconsin Supreme Court requesting that it revisit its holding in Murray. Such certification is allowed only where there is no controlling precedent in the decisions of the state appellate and supreme courts. Clearly, that was not the situation faced by the Seventh Circuit. The Seventh Circuit noted, “If Wisconsin is to adopt the independent approach, its own courts must do so.”

Lesson: Time on Front-end Negotiations Is Well Spent

Hindsight is always 20-20, but the Sanchelima case is a good reminder that spending time to negotiate contractual terms on the front end, and that, as lawyers, explaining their consequences to our clients is time well spent.


1 No. 18-1823 (April 10, 2019)

2 265 N.W.2d 513 (Wis. 1978)