Tag Archives: loan forgiveness

Tax Updates related for revisions to the Paycheck Protection Plan (PPP) H.R. 7010

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Hello Vertical Advisors (VA) Clients & Friends:

This morning listening to the news, I heard that the jobs report showed 3MM job added.  That is great!  In listening to the news but more importantly speaking with our clients, everyone seems ready to open and or get their business back to normal or bigger.  President Trump has stated he expects the US economy to bounce back strong.  A lot of our clients want to believe President Trumps statements about the economy getting back to normal, but we need to see the results to convince us.  The fact that the job report showed 3MM jobs added seems to be the beginning of support for the Presidents statements and supports what I’m hearing from our clients and business owners.  Please read this memo in conjunction with our memo dated April 2, 2020 that discusses the CARES Act.

Today, President Trump signed H.R. 7010 which revised the PPP Act.  The revisions were small but should be helpful.  The revisions are focused on the loan forgiveness section and are as follows:

Section 1106 of the CARES Act discusses PPP Loan Forgiveness:

Change in Covered Period.  The covered period is the time one needs to spend the PPP funds:

The original CARES act stated the covered period to use the PPP funds was 8 weeks. H.R. 7010 changes the covered period to the earlier of 24 weeks or December 31, 2020.

Change in the requirements of the PPP funds spent on payroll costs:

The CARES Act didn’t define a specific percentage needed to be spent on payroll and no payroll.  The SBA provided regulations which stated at least 75% needed to be spent on payroll costs.    H.R. 7010 states that 60% must be spent on qualified payroll and 40% on the non-payroll items.

Reminders:

  • Payroll costs include employees’ wages during the covered period which can’t exceed $100k / annual.
    • Includes health insurance premiums
  • Doesn’t include employer payroll taxes
  • Other costs for the 40% (rent, interest on mortgage, utilities)

Updates on rehiring:

There are reductions in the loan forgiveness if head counts is reduce 25% or more.  If an employee quit or was fired, then the business had the option to replace that position with a new employee.  However, there were discussions regarding the company asking the employee to come back to work and the employee not accepting.  The updates allow additional flexibility regarding employee counts and availability.  A company head count will not be hurt if the company can show support and documentation that they were unable to rehire an employee AND unable to hire a similar qualified employee for an unfilled position on or before December 31, 2020.

COVID-19 Safety Standards:

Requires the business to follow requirements established or guidance issued by the Secretary of Health and Human Services for the period March 1, 2020 and ending on December 31, 2020 to maintain standards of sanitation, social distancing and other related safety requirements related to COVID-19.  Our firm has used the OSHA guidelines at https://www.osha.gov/Publications/OSHA3990.pdf, and we suggest you speak with your HR or labor attorney.  Also as stated previously, OSHA may come and check your facility to follow regular requirements and COVID-19 in accordance with the CARES Act.  So, make sure you are prepared.  Make sure you have your posters up.

Loan Limit Changes:

Any of the PPP that isn’t forgiven is a loan.  The interest rate is 1% and the term seems to be changed from two (2) years to five years (5).    This area of the law needs to be explained more.

President Trump today again discussed a payroll tax holiday, so stay tuned.

Our firm is back working in the office.  Let’s all continue to get back to normal.  Please contact us if we can be of any assistance.  949-756-8080.

PPP Loan Forgiveness Update

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If you received a PPP loan, please make sure you read the PPP Loan Forgiveness rules, and contact if you need assistance.  We felt the US Chamber of Commerce Guide was well written.  You can view it at https://www.uschamber.com/report/guide-ppp-loan-forgiveness

If you have questions, or need assistance with preparing for the loan forgiveness application, please contact us for assistance.

Paycheck Protection Program Loan (PPPL)

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Proceeds that are forgiven will generate reduced income tax deductions.

The IRS has just released IRS Notice 2020-32 that informed the public if a taxpayer requests and is approved some or all of the PPPL to be forgiven, then that amount that we used for expenses related to payroll, health care, rent, interest expense and other related qualified costs will not be deductible. This IRS notice is related to Internal Revenue Code Section 265, which stated in summary that expenses related to tax-exempt income are not tax deductible.

Also, consider that GAAP will treat the accounting differently for loan forgiveness. “ASC 405-20 provides accounting guidance relevant to the extinguishment of liabilities. Under ASC 405,when a debtor is legally released from a liability, the debt is considered extinguished via “legal defeasance.” Based on the information available at this time, loan forgiveness under the Paycheck Protection Program appears to fit the characteristics of a legal defeasance and could therefore be accounted for as a debt extinguishment.” Please reach out to us if you have any specific questions. We have attached a link for you to read IRS Notice 2020-32 at https://www.irs.gov/pub/irs-drop/n-20-32.pdf

Preparing for Loan Forgiveness Under the Paycheck Protection Program (PPP)

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In preparing for receipt of any funds from the Paycheck Protection Program Loan (PPPL), one should consider setting up a separate bank account to deposit the PPPL funds in and then to pay out expenses that qualify for loan forgiveness. First, let’s review section 1106 Loan Forgiveness under the CARES Act. It states, Borrower shall be eligible for loan forgiveness equal to the amount spent by borrower during an 8-week period after the origination date of the loan on:

  1. payroll costs (wages up to $100,000 annually per employee, health insurance, and some state taxes)
  2. interest payment on mortgages incurred prior to February 15, 2020,
  3. payment of rent on any lease in force prior to February 15, 2020 and;
  4. payment on any utilities for which service began before February 15, 2020.

Recent updates also stated that 75% or more of the loan forgiveness needs to be for payroll. So, our suggestion is to open a bank account specifically for the PPPL proceeds and qualified expenses listed above. They have the qualified expenses listed above paid out of that account, and hopefully this process will make is easier for banks to see the qualified expenses were paid using the PPPL proceeds and hopefully allow for an easy process for the loan forgiveness. This PPPL process has been challenging for more applicants, so perhaps this separate bank account will make it easier is requesting for loan forgiveness in the future. As long as the business sets up the bank account early and requests checks, then we would expect these qualified expenses can be paid out of this designated account.

Please note this is not a full explanation of the CARES Act or the PPPL program.  For more information please review our previous posts and speak with your tax advisor.

Please contact us if you have any questions.