ppp and more! - roi business services, llcroibusin/files/5-4... · 2020-05-04 · of ppp loan was...

PPP and More!Guidance as of May 1, 2020

Mark (“Coach”) Mirsky, Managing Director, ROI Business Services, [email protected]

©2020 ROI Business Services, LLC

mailto:[email protected]

In accordance with United States Treasury Regulations and IRSCircular 230, you should be advised that the comments made duringthe seminar or in these materials provided are not intended to be andcannot be used by the attendee or any other person(s) for thepurpose of avoiding penalties that may be imposed under federal orstate laws. This presentation should not be construed as providingtax or legal advice regarding any particular situation and should bereviewed by each taxpayers’ independent tax and legal advisorsspecific to that individual’s circumstances. The comments andmaterials presented may not be quoted or referred to in any otherpresentation or publication without prior written permission by ROIBusiness Services, LLC. Nor can this information be used by anyindividual or entity to advertise or recommend any tax, employmentor business transactions or matters presented in the materials orpresentation.

The views presented today are those of the authors and notnecessarily ROI Business Services, LLC. By attending thisseminar, you agree that ROI Business Services, LLC are notproviding professional advice and are attempting to providegeneral informative content based on all guidance providedthrough May 1, 2020. ROI Business Services, LLC intend toupdate these particular materials to account for futureguidance / pronouncements which may be forthcoming.


∗ Legislation∗ Employment Concerns / Planning∗ Tax Planning∗ EIDL Grant∗ EIDL Loan∗ PPP Loan∗ Forgiveness

Discussion Topics

Legislation



∗ Phase 1 – P.L. 116-123 (H.R. 6074) signed 3/6/2020 Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020

∗ Phase 2 – P.L. 116-127 (H.R. 6201) signed 3/18/2020 Families First Coronavirus Response Act

∗ Phase 3 – P.L. 116-136 (H.R. 748) signed 3/27/2020 Coronavirus Aid, Relief, and Economic Security Act “CARES Act”

∗ Phase 3.5 – P.L. 116-139 (H.R. 266) signed 4/24/2020 Paycheck Protection Program and Health Care Enhancement Act

∗ Phase 4 – TBD

COVID-19 Legislation

https://www.congress.gov/116/plaws/publ123/PLAW-116publ123.pdf

https://www.congress.gov/116/bills/hr6201/BILLS-116hr6201enr.pdf




∗ Phase 3.5 – $484B∗ $321B PPP Loans∗ $10B EIDL Grants∗ $50B EIDL Loans∗ $2B SBA funding∗ $75B Public Health and Social Services Emergency Fund∗ $25B Research, develop, validate, manufacture, purchase, administer, and expand

COVID-19 tests

COVID-19 Legislation


∗ CDC - Coronavirus∗ CDC – Guidance for Businesses∗ OSHA∗ DOL∗ DOL Q&A∗ DOL poster 4/1 requirement∗ Chamber of Commerce Summary∗ IRS∗ SBA∗ Treasury

Additional Information

https://www.cdc.gov/coronavirus/2019-ncov/index.html

https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html

https://www.osha.gov/SLTC/covid-19/

https://www.dol.gov/coronavirus

https://www.dol.gov/agencies/whd/pandemic/ffcra-questions

https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf

https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final_revised.pdf

https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments

https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

https://home.treasury.gov/policy-issues/cares


∗ Contact your local Congressional Representative∗ Contact the SBA∗ Discuss with your tax professional and attorney∗ My US Representative is Raja Krishnamoorthi ∗ Office 847-413-1959

∗ Find your Representative

Who to Contact?

https://www.house.gov/representatives/find-your-representative

Employment Concerns / Planning



∗ Includes individuals that would not otherwise qualify

∗ Meets one of the requirements∗ Does not include∗ Individual who can telework for pay∗ Individual receiving paid sick leave or other paid leave benefits

∗ State administered but federally funded∗ Up to 39 weeks∗ Effective through 12/31/2020

∗ Reduced reimbursement for nonprofits/government entities(P.L. 116-136 Sec 2101-2116)

Unemployment



∗ Emergency increase in unemployment∗ Additional $600/week∗ Taxable benefit∗ Effective until 7/31/2020

∗ Pandemic Emergency Unemployment∗ Additional 13 weeks federally funded∗ Must have exhausted state benefits

∗ Short-time Compensation (work sharing program)

Unemployment (Cont’d)


∗ Deferral of FICA (P.L. 116-136 Sec 2302)

∗ Only employer portion (6.2%)∗ 50% deferred to 12/2021 and 50% to 12/2022∗ IRS clarified CAN defer even obtain PPP up through date lender decides a portion

of PPP loan was forgiven (Q&A 4)∗ 3/27/2020-12/31/2020

∗ New 941 Form (4/29/20)

Payroll Tax Deferral


https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020

https://www.irs.gov/pub/irs-dft/f941--dft.pdf


∗ Refundable (IRS Q&A) credit (P.L. 116-136 Sec 2301)

∗ 50% of wages paid (max $10k/qtr/EE)∗ Ineligible if SBA 7(a) PPP loan (Discussed later)∗ Eligible employer

∗ Carrying on a Trade or Business in 2020, and∗ Either, operations fully or partially suspended, or∗ 50% decrease in gross receipts in calendar quarter

∗ Available for NFP if operations suspended∗ Qualified wages∗ Wages paid 3/13/2020 - 12/31/2020

∗ Form 7200

Employee Retention Credit

https://www.irs.gov/coronavirus/employee-retention-credit


https://www.irs.gov/pub/irs-pdf/f7200.pdf


∗ If already closed prior to 4/1, does not apply to employees (DOL Q&A #23)∗ Employers with <500 employees∗ Any employee qualifies∗ Qualifying Reasons∗ Full time (80 hours)∗ Part time 2 week avg hours∗ Cannot change policy to decrease allowable sick pay∗ Notice is required to be posted 4/1

(P.L. 116-127 Sec 5101-5111)

Emergency Paid Sick Leave

https://www.dol.gov/agencies/whd/pandemic/ffcra-questions

https://www.dol.gov/sites/dolgov/files/WHD/posters/FFCRA_Poster_WH1422_Non-Federal.pdf



∗ Effective 4/1/2020∗ Employers with <500 employees∗ Employee employed at least 30 days∗ ONLY APPLIES TO Care for child under 18∗ School closed∗ Child care provider unavailable

∗ 12 weeks of job-protected leave∗ Excluded if <50 EEs, and∗ Jeopardize viability of business as going concern

(P.L. 116-127 Sec 3101-3106)

Emergency Family and Medical Leave



∗ First 2 weeks excluded∗ Can be unpaid∗ Can elect ER vacation/sick/PTO under ER plan∗ Can use paid Sick Pay under Act∗ Employee choice

∗ Amount is lesser of∗ 2/3 of regular rate of pay, or∗ $200/day

∗ Maximum of $10,000 (10 weeks)

Emergency Family and Medical Leave (Cont’d)


∗ Employer receives 100% credit∗ Against FICA for quarter in which paid (6.2%)∗ Excess paid is refundable∗ Credit is not deductible

∗ Credit taken on Form 941 (New form 4/29/20)

(P.L. 116-127 Sec 7001-7005)

Tax Credits for Paid Sick and Paid Family and Medical Leave

https://www.irs.gov/pub/irs-dft/f941--dft.pdf



∗ Self-employed∗ Self care (quarantine/symptoms) – lesser of

∗ $511/day (max 10), or∗ 100% of avg daily rate x applicable days (max 10)

∗ Care for others – lesser of∗ $200/day (max 10), or∗ 2/3 avg daily rate for others x applicable days (max 10)

∗ Credit is against income tax

Tax Credits for Paid Sick and Paid Family and Medical Leave (Cont’d)

Tax Planning



∗ All Federal income tax returns ORIGINAL OR EXTENDED due date prior to 7/15/2020 extended to 7/15/2020

∗ 7/15 does not apply to payroll tax∗ Extension due 7/15/20 to extend to 10/15/20∗ States may not follow Federal

∗ Installment agreements suspended 4/1-7/15∗ Liens/Levies suspended∗ IRS closed services

Extensions

https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program


∗ IRS Notice 2020-20∗ 7/15/20 for Form 709 Gift and GST

∗ Also fiscal year Forms 1041, 1065, and 1120S∗ Penalty and Interest starts from 7/15/20∗ If already filed, call 888-353-4537 (per IRS Q&A)

∗ Mortgage forbearance up to 180 days allowable∗ Student loan payments deferred until 9/30/2020

Extensions & Balance Due

https://www.irs.gov/pub/irs-drop/n-20-20.pdf

https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers


∗ Current 7(a), 504, or microloans∗ Automatic with lender∗ Principal, interest, and fees paid by SBA for 6 months∗ Potential taxable income

SBA Debt Relief


∗ Net Operating Loss∗ Excess Business Loss after 12/31/20 (vs 12/31/17)∗ Business Interest Expense∗ Qualified Improvement Property (2018-2025)(P.L. 116-136 Sec 2303-2307)

Business Tax Provisions



∗ Disaster Relief Payments (after 3/13/2020)∗ No limit on amount∗ Does not require written plan∗ Deduction by employer and not taxable to employee!∗ Qualified Expenses (as a result of disaster)

Section 139 Relief

https://www.law.cornell.edu/uscode/text/26/139


∗ May consider filing amended returns∗ Potential changes of accounting method∗ Consider Roth conversions∗ Sell appreciated assets and buy back (careful! Discuss with Fin planner)∗ Potentially speed up installment sale income∗ Discuss with bank how debt forgiveness impacts covenants∗ How does debt forgiveness impact EBITDA?

Business Planning


∗ Utilize 0% capital gains bracket!∗ Pay dividend out of corporation∗ Slow down depreciation∗ Utilize 139 payments to retain employees∗ Bunching of deductions?∗ Pay employees to not work vs unemployment?∗ What should be our focus?

Business Planning (Cont’d)

Economic Injury Disaster Loan (“EIDL”) Emergency Advance



∗ Emergency (P.L. 116-136 Sec 1110)

∗ Up to $10,000 grant ($1k/Employee) (Application site is down due to funding!!!)∗ Needed to re-apply if you would like $10k advance∗ Still being funded∗ Not required to be repaid∗ Can also apply for PPP loan (discussed next)∗ Uses

EIDL


https://covid19relief.sba.gov/#/

EIDL Loan Program



∗ SBA run program (P.L. 116-123 Title 2 modified by P.L. 116-136 Sec 1110)

∗ Up to $2MM for working capital, payroll∗ Rate is 3.75% (2.75% Private NFP) terms up to 30 years∗ P&I deferred up to 4 years∗ >$25,000 require collateral∗ >$200,000 require guarantee∗ Requirement to be unable to obtain elsewhere removed∗ Credit history and ability to repay are considered∗ Seminar 3/26/20 SBA EIDL

EIDL

https://www.sba.gov/page/disaster-loan-applications#section-header-2

https://www.congress.gov/116/plaws/publ123/PLAW-116publ123.pdf


https://www.sba.gov/sites/default/files/resource_files/EIDL-BDO_Presentation_March_26_0.pdf


∗ <500 employees (may include affiliates), OR∗ NAICS Code determines revenue or employment eligibility requirements∗ Form 5 (or 5C) and P-019∗ Will need to fill in multiple forms at some point∗ SBA Resource Center

EIDL (Cont’d)

https://www.sba.gov/size-standards/

https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources?utm_medium=email&utm_source=govdelivery

Paycheck Protection Program (“PPP” or “P3”)



∗ SBA sponsored program – loan from bank∗ Up to $10MM for impacted businesses ($1MM express loans)∗ Rate 1% with terms up of 2 years∗ Pmts deferred 6 months – 1 year (P&I)∗ No collateral required or personal guarantee∗ Requirement to be unable to obtain elsewhere removed∗ Credit history and ability to repay are considered∗ FAQ

(P.L. 116-136 Sec 1102)

PPP

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf



∗ Qualified business∗ In operation on 2/15/2020∗ Funds to be used to retain workers and maintain payroll, pay mortgage,

lease, or utilities∗ Must have paid W-2 employees or be a 1099 contractors∗ Any business or NFP (public or private)∗ Qualified small business

PPP (Cont’d)


∗ Loan based on “payroll costs”∗ “Gross” Salary, wage, commission∗ Cash tip or equivalent∗ Vacation, parental, family, medical, or sick pay∗ Allowance for dismissal or separation∗ Group healthcare benefits including premiums∗ Retirement benefits∗ State and local tax based on compensation∗ S/E income up to $100,000 (pro-rated)

PPP (Cont’d)

https://www.sba.gov/sites/default/files/2020-04/PPP%20Interim%20Final%20Rule_0.pdf


PPP (Cont’d)

∗ “Payroll costs” exclude: ∗ Compensation for employee with principal residence outside US∗ Compensation >$100,000∗ Federal employment taxes imposed or withheld 2/15/20-6/30/20 (FICA/Fed

W/H)∗ Qualified sick leave wages for which a credit under this act is obtained∗ Qualified family leave wages for which a credit under this act is obtained

∗ Loan amount is lesser of∗ $10,000,000, or∗ 2.5 x average monthly payroll costs payments by employer∗ Plus EIDL made between 1/31/20-4/3/20∗ Less EIDL advance



∗ How much did you qualify for?∗ 2.5 x average monthly payroll (which includes average self-employment income)

capped at $100k/individual∗ Were independent contractors included? What was used for benefit cost? What

about payroll taxes paid? Did banks scrutinize your figures?

∗ Don’t forget you qualify for payroll tax deferral up through the date the bank approves your forgiveness of a portion of your PPP loan.

∗ Reminder, if you take PPP loan, you don’t qualify for employee retention credit!!

PPP (Cont’d)

https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-interaction-with-other-credit-and-relief-provisions-faqs


∗ Use of proceeds (PPP Fact Sheet)∗ 75% for the following:

∗ Payroll including sick pay or family medical leave∗ Salaries, commissions, compensation, severance∗ Benefits – Health and Retirement

∗ Rent (real or personal) for leases agreements in force before 2/15/2020∗ Utilities for which services began before 2/15/2020∗ Interest on mortgage obligations (real or personal) incurred before 2/15/2020

∗ How much time do you have to use them?

PPP (Cont’d)

https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf

https://www.sba.gov/sites/default/files/2020-04/PPP%20Interim%20Final%20Rule_0.pdf


∗ Certifications

∗ “Uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations”

∗ “Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments”

∗ “Recipient does not have an application pending for a loan under this sub-section for the same purpose and duplicative of amounts applied for or received under a covered loan”

∗ “During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection”

(P.L. 116-136 Sec 1102(a) adding (G)(i))

PPP (Cont’d)



∗ “all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.”

PPP (Cont’d)


∗ Certifications

∗ “Uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations”

∗ “Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments”

∗ “Recipient does not have an application pending for a loan under this sub-section for the same purpose and duplicative of amounts applied for or received under a covered loan”

∗ “During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection”

(P.L. 116-136 Sec 1102(a) adding (G)(i))

PPP (Cont’d)



∗ Certifications (Cont’d)

∗ What if we had no debt? What if revenues were up? What if we honestly don’t feel we were impacted or were going to be impacted?

∗ Can we pay distributions/dividends or repurchase shares? Can we buy equipment? Can we expand facilities?

∗ When you applied, you were stating you did NOT have another loan application in process at another bank. Did you tell the other bank to cancel your application if you switched banks?

∗ Hopefully having 2 loans is NOT a real world issue as we would hope SBA would match up FEIN/SSNs.

PPP (Cont’d)


∗ Certifications (Cont’d)∗ How can we justify the need (EVERY TAXPAYER SHOULD HAVE DONE THIS)?

∗ Comparative financials (Q1 2019 v 2020) – best to show post 2/15∗ Month to month financials (Jan/Feb/Mar/Apr trending after 2/15)∗ Comparative vendor bills (trending after 2/15)∗ Documentation of disruptions of supply chain, distribution chain, sales force,

employment force∗ Documentation of doubt relating to future revenues, timing of collection, source of

funds∗ Document current funds available – how they would ordinarily be used for working

capital and that loss of revenue/increased costs/deferral of collections fully utilizes these sources.

∗ Consult attorney if in doubt – return funds by May 7 (see next slide)!

PPP (Cont’d)


∗ Certifications (Cont’d)

∗ What if we believe we should NOT have applied for the loan? Now what? See Q&A 37 and 31∗ Knowingly providing false information up to 5 years prison / $250k fine∗ If you applied before April 23, 2020 and obtained a PPP loan, you may repay in full by

May 7, 2020 and you will be deemed to have made certification in good faith.∗ Tuesday, April 28, 2020 Treasury Secretary Mnuchin stated full audit for >$2MM

∗ Average loan size first round $206k∗ Only 29,978 out of 1,661,367 applications >$2MM

(SBA Guidance)

PPP (Cont’d)


https://www.pymnts.com/loans/2020/mnuchin-sba-ppp-loans-over-2m-face-audits-before-forgiveness/


PPP Forgiveness



∗ Amounts forgiven may be costs incurred and paid 8 weeks starting date loan is fundedfor:∗ Payroll costs∗ Interest on mortgages (personal/real) in existence 2/15/2020∗ Rent (personal/real) in existence 2/15/2020∗ Utilities in place 2/15/2020

∗ Lesser of amounts incurred or loan amount

∗ Less amount of any EIDL grant received(P.L. 116-136 Sec 1106)

Forgiveness of Debt (PPP)



∗ Myth: If taxpayers simply spend the same amounts on payroll costs during the 8 week covered period as they had previously, and employ the same number of employees, then 100% of the loan be forgiven.

∗ Fact: Without planning, many will not have 100% forgiven. Do the math! Discuss with your tax advisors. ∗ BANKS SHOULD NOT BE PROVIDING ADVICE∗ GOOGLE DOES NOT KNOW EVERYTHING!!! ∗ “I heard that”, “My friend said”, “but my banker said”… Listen to your professional advisors who are staying

informed. CONSIDER THE ULTIMATE SOURCE OF INFORMATION

∗ Fact: Banks are indemnified for almost any liability and may rely on taxpayer certifications and documents provided.

∗ Fact: Early loans that were approved by banks may have included items in loan amounts that did not qualify.



∗ Open issues (Submitted to Congressional Rep but guidance must come from Treasury):∗ Law states “Costs incurred and paid”∗ What payroll costs are included? Incurred and paid? Matching? Additional pay period required?∗ What is included as group health costs? Medical/Dental/Vision/105/MSA/HSA?∗ What retirement costs are included? How computed? Defined benefit/contribution/match? Have to be

incurred during 8 week period? Or just paid during 8 week period for 8 week period?∗ Self-employed / LLC members – both 8/52 of 2019 only? Benefits for members?∗ What rent qualifies? ∗ What utilities qualify? Home office?∗ Do Section 139 payments qualify? ∗ Are union health and pension costs included?



∗ Open issues (Cont’d):∗ Does unemployment tax need to be “paid” to DES or simply incurred?∗ How is the $15,384.62 taken into account by EE / S/E individual? Pay period by pay period? Over entire 8

weeks?∗ How is average FTE computed? 30 hrs/week? Round down/up?∗ Excluded EE for wage reduction (ANY pay period)?∗ Re-hiring EE by 6/30 and pay bonus to return, all included?∗ What if we pay bonuses to current employees?∗ What if we hire more people than we had before?∗ What interest expense qualifies?∗ Do we still get to take the deductions if amounts are forgiven?∗ Will 8 week period be extended or changed?



∗ 2 potential reductions in loan forgiveness∗ Reduction in employees

∗ Numerator # of FTEs in 8 week period∗ Denominator # of FTEs either 2/15/19-6/30/19 or 1/1/20-2/29/20∗ Rehire by 6/30/20 to avoid reduction

∗ Reduction in pay∗ Reduction over 8 week period∗ Compared to quarter previous to loan∗ Amount >25% reduces forgiveness amount∗ Increase by 6/30/20 to avoid reduction

∗ Not considered taxable income! Or is it??? Notice 2020-32

Forgiveness of Debt (Cont’d)

https://www.irs.gov/pub/irs-drop/n-20-32.pdf


∗ Full Time Equivalent (“FTE”) Potential Computation∗ 30 hrs/week = 1 FTE (SBA guidance similar to §4980H?)∗ Take total PT hours worked in pay period / (30 x weeks in period)∗ Add to FT employees (those who average 30 hrs/week or 130/mo)∗ Round up or down?∗ Determine average monthly FTE for each test period∗ 2/15/19-6/30/19∗ 1/1/20-2/29/20∗ 8 week period starting on funding date∗ 2/15/20-4/26/20 and 2/15/20



∗ FTE Example∗ 5 EEs are PT and work 25 hours each in a bi-weekly pay period∗ 5 EEs are FT and work 80 hours each in the same period

∗ PT EEs total 125 / (30 x 2) = 2.083 ∗ Add FT employees of 5∗ Total FTEs = 7.083 (Are we using 7 or 8 or a fraction?)



∗ Payroll costs (minimum of 75% of total forgiveness)

∗ Interest on mortgage in existence 2/15/2020∗ Rent (personal/real) in existence 2/15/2020∗ Utilities in place 2/15/2020

∗ Compute payroll costs spent and take 1/3 to determine allowable for “other costs”



∗ Bank required a payroll report and multiplied by 52 / 12 to get average monthly payroll – one week payroll was $15,000 but excess over $100k was $30,000 for the year. (15k x 52) – 30k / 12 = $62,500

∗ Assume loan amount is $156,250 ($62,500 x 2.5)

∗ 25% or $39,063 would be maximum allowable for “Interest, rent, utilities”

Example 1


∗ Assume that payroll is made up of the following:∗ 5 employees paid $1,000/week∗ 5 employees paid $1,500/week∗ 1 employee paid $2,500/week

∗ Rents paid are $8,000 / mo∗ Utilities paid are $1,500 / mo

Example 1 (Cont’d)


∗ Assume payroll / # of EEs stays constant over the 8 week period∗ 5 x 8 x $1,000 = $40,000∗ 5 x 8 x $1,500 = $60,000∗ 1 x 8 x $2,500 = $20,000 (limited to $15,385)

∗ Payroll costs for forgiveness $115,385 (Maximum other $38,462)∗ 2 mos rent covered period $ 16,000∗ 2 mos utilities covered period $ 3,000∗ Total amount forgiven $134,385 of the $156,250∗ Loan remaining $ 21,865



∗ Same facts as Example 1∗ However, employer needed to cut 3 employees for business reasons who

were making $1,500/week – cannot rehire by 6/30/20∗ Avg FTE 2/15/19-6/30/19 13 ∗ Avg FTE 1/1/20-2/29/20 11 (USE THIS SINCE LESS)∗ Avg FTE 8 week covered period 8∗ % reduction 3 / 11 = 27%

Example 1A


∗ Assume payroll / # of EEs stays constant over the 8 week period∗ 5 x 8 x $1,000 = $40,000∗ 3 x 8 x $1,500 = $36,000∗ 1 x 8 x $2,500 = $20,000 (limited to $15,385)

∗ Compensation for forgiveness $ 91,385 (Maximum other $30,462)∗ 2 mos rent covered period $ 16,000∗ 2 mos utilities covered period $ 3,000∗ Total forgivable costs $110,385∗ Reduction amount 27% $ 30,105∗ Forgivable amount $ 80,280 of the $156,250∗ Loan remaining $ 75,970

Example 1A (Cont’d)


∗ Same facts as Example 1∗ However, employer needed to cut compensation for 5 employees for

business reasons who were making $1,500/week to $1,000/week∗ 10 x 8 x $1,000 = $80,000∗ 1 x 8 x $2,500 = $20,000 (limited to $15,385)

∗ 5 EE Q1, 2020 comp $19,500/each∗ 5 EE 8 week comp $ 8,000/each∗ Reduction amount $ 6,625/each (19,500 x .75 – 8,000)

Example 1B


∗ Assume payroll / # of EEs stays constant over the 8 week period∗ 10 x 8 x $1,000 = $80,000∗ 1 x 8 x $2,500 = $20,000 (limited to $15,385)

∗ Compensation for forgiveness $ 95,385 (Maximum other $30,462)∗ 2 mos rent covered period $ 16,000∗ 2 mos utilities covered period $ 3,000∗ Total forgivable costs $114,385∗ Reduction amount 6,625 x5 $ 33,125∗ Forgivable amount $ 81,260 of the $156,250∗ Loan remaining $ 74,990

Example 1B (Cont’d)


∗ Same facts as Example 1∗ Assume that payroll is made up of the following:∗ 5 employees paid $1,000/week Q1 $13,000 each∗ 5 employees paid $1,500/week Q1 $19,500 each∗ 1 employee paid $2,500/week Q1 $32,500

∗ Rents paid are $18,000 / mo (increased from Example 1)∗ Utilities paid are $3,000 / mo (increased from Example 1)

Example 1C


∗ Q1 $13,000 x .75 = $ 9,750 – 8,000 = $1,750 x 5 = $8,750∗ Q1 $19,500 x .75 = $14,625 – 12,000 = $2,625 x 5 = $13,125∗ Q1 $32,500 excluded employee since > $100k

∗ Total amount of reduction $21,875

Example 1C (Cont’d)


∗ Assume payroll / # of EEs stays constant over the 8 week period∗ 5 x 8 x $1,000 = $40,000 ∗ 5 x 8 x $1,500 = $60,000∗ 1 x 8 x $2,500 = $20,000 (limited to $15,385) excluded

∗ Compensation for forgiveness $115,385 (Maximum other $38,462)∗ 2 mos rent covered period $ 36,000∗ 2 mos utilities covered period $ 6,000 (Limited to $38,462)∗ Total forgivable costs $153,847∗ Reduction amount $ 21,875∗ Forgivable amount $131,972 of the $156,250∗ Loan remaining $ 24,278

Example 1C (Cont’d)


∗ Self-employed individual with no employees. Bank required a schedule C from 2019 which showed self-employment income of $150,000. So excess over $100k was $50,000 for the year. (100k / 12 = $8,333

∗ Assume loan amount is $20,833 ($8,333 x 2.5)

∗ $5,208 would be allowable for “Interest, rent, utilities”

Example 2


∗ Forgiveness for self-employed is 8/52 x 2019 s/e income $15,385

∗ Assume no rent and mortgage is paid off – what qualifies?∗ Utilities paid (assuming allowable) are $1,500 / mo



∗ Compensation for forgiveness $ 15,385 (Maximum other $5,128)∗ 2 mos rent covered period $ 0∗ 2 mos utilities covered period $ 3,000∗ Total amount forgiven $ 18,385 of the $20,833∗ Loan remaining $ 2,448



Summary of Forgiveness

Example Summary Forgiveness Loan Amount

1 Not enough “other” $134,385 $21,865

1A Reduce # employees $80,280 $75,970

1B Reduce compensation $81,260 $74,990

1C Continue paying same comp $131,972 $24,278

2 Self-employed $15,385 $2,448


∗ Suggestions to increase ability for forgiveness:∗ Be sure you can justify need for loan (remember return date 5/7/20)∗ Determine Avg FTE 2/15/19-6/30/19, 1/1/20-2/29/20, 2/15/20 AND 2/15/20-4/26/20

in addition to the 8-week period beginning date funded PPP loan∗ Maintain employment levels or bring them back by 6/30/20∗ Determine how much 75% of Q1 wages are by EE∗ Determine 75% of total loan amount∗ Consider paying additional amounts over 8 week period∗ Pay attention to definitions / forgiveness formula from Treasury (SBA)∗ MAKE GOOD BUSINESS DECISIONS!!!

Comments


∗ What to track? (Incurred and paid?) – 8 week period∗ Payroll costs

∗ Gross wages∗ Health costs∗ Retirement costs

∗ Rent (real/personal)∗ Utilities

∗ Consider separate accounts on GL (Spreadsheet by week?)∗ Record forgiveness as other income?∗ Bank statements, payroll reports, invoices, leases, mortgage statements

Comments


∗ Book amounts received from loan as LT liability (for portion due > 1 year) and ST liability for balance

∗ Upon forgiveness, we recommend booking as other income upon forgiveness∗ Technically should reduce each expense for which PPP was used

∗ Balance remaining would stay on books as liability

Comments


∗ Bank will require you submit documents in order to approve any forgiveness (guidance not issued)∗ Likely payroll reports∗ Bank statements showing expenditures (cancelled checks/credit card stmt)∗ Leases in existence prior to 2/15∗ Mortgages in existence prior to 2/15∗ Invoices showing utilities in existence prior to 2/15

∗ Bank has 60 days after you submit to determine amount of forgiveness∗ After forgiveness is approved, no longer qualify to defer P/R taxes

Comments


∗ What if you don’t spend it all within 8 weeks?∗ Do the amounts need to be spent within 2 years?∗ Do we have to spend 75% on payroll costs?∗ Can I fund a profit sharing/cash balance plan?∗ Can we hire additional people during the 8 week period?∗ Can we increase compensation or pay bonuses?∗ Can we hire family members?∗ How are prepayments treated?∗ Should I pay people to stay at home during the 8 week period?

Questions


∗ What if an employee should be terminated, should they be?∗ If we increase compensation, what are ramifications for worker’s

compensation, employee expectations?∗ Is owner’s pay included in forgivable amount?∗ If funded on May 10, will 8 week period be allowed to go beyond 6/30?∗ Can we take owner distributions during the 8 week period?∗ Are we required to keep funds in separate account?∗ What risks does my tax preparer assume in signing my return?∗ Will we get audited for documentation?

Questions


∗ Reminder, Congress passed law, Treasury provides interpretation/regulations regarding the law

∗ Clear as mud….∗ Any time left for Q&A???

Q & A


Good luck and stay safe!!!Consult your professionals for further information

Thank you for attending!The team at ROI Business Services, LLC

798 W Bartlett RoadBartlett, IL 60103

www.roibusinessservices.com(630) 855-5787

http://www.roibusinessservices.com/

ppp and more! - roi business services, llcroibusin/files/5-4... · 2020-05-04 · of ppp loan was...

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