From the IRS e-News for Small Business Issue 2020-13 today, a note encouraging businesses to use a new fax line to file Form 7200. The IRS still is ramping up staff and catching up departments post-quarantine, so in order to get your advance payment as quickly as possible, please follow their instructions and use the dedicated fax line.
(If you are working with a payroll company who is filing Form 7200 for you, confirm they are taking care of it — do not simply assume. I’ve already come across two companies so far who won’t do it. Time to switch payroll companies, in my opinion.)
IRS Form 7200 fax line: Employers use Form 7200 to request an advance payment of the tax credits for qualified sick and qualified family leave wages and the employee retention credit. The employer tax credits for qualified sick leave wages and qualified family leave wages apply to those wages paid from April 1, 2020, to December 31, 2020.
Businesses should fax the completed form to 855-248-0552.
Due to scheduled maintenance, the 7200 fax line will be unavailable from August 7 at 10 p.m. to August 8 at 7 a.m. ET.
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A lot of clients have been reaching out about how to handle the Cook County, Illinois property tax bills that began arriving in mailboxes a few weeks ago — so I just wanted to issue a reminder: although the second installment is technically due August 3, property owners can take until October 1 to pay without any interest charge.
Cook County Treasurer Maria Pappas suggested that property owners should go ahead start making partial payments now — to avoid one big payment on October 1. Any balance due after that date will be charged 1.5 percent per month, as required by state law.
To download a copy of your tax bill or to make a payment, visit www.cookcountytreasurer.com. There is no fee if you pay from your bank account:
Select the blue box labeled “Pay Online for Free”
Search by property address or enter your Property Index Number (PIN) and click “Continue.
You also can download a copy of your bill, check and update key information about your property, such as mailing address or property tax exemptions, and more.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
On Friday afternoon, July 17, Secretary of the Treasury Mnuchin announced that he would consider recommending to both the IRS and SBA that all PPP loans below a certain amount be automatically forgiven. The PPP loan cap mentioned in the discussion was for all loans under $150,000 (though various lobbying groups have floated other amounts). Loans at this level and below account for 86% of all PPP loans — but only 26% of the funds.
This would allow banks and the SBA to concentrate their reviews on the loans above $150,000 — only 14% of the loans — which make up a whopping 74% of the funds. (Among these large borrowers are the many chains, billionaires, and public companies that arguably were not the “small businesses” the fund was meant to help.)
If this recommendation is made, and if accepted, presumably that would mean that Forms 3508-EZ or 3508 would not have to be filed by the borrower with the PPP lender. Mnuchin did mention that some fraud precaution would need to be involved. We’ll have to wait to learn more.
I’ve been put off by how many of my colleagues have been mining these applications for additional fees (and bragging about it), especially when their small-business clients desperately need all the funds they can get to keep their businesses running. So not only would this move by Treasury aid small business owners, who are already overwhelmed with keeping afloat during a pandemic; as well as lenders, who would be able to spend resources more effectively in examining large loans; but it also would put the brakes on the predatory behaviors of “trusted advisors”.
In light of this exciting new development/ possibility, and the fact that we are still waiting for an SBA/Treasury FAQ — which has been promised for weeks on-end at this point — I have decided to postpone all client meetings and webinars on the topic, to allow for the respective government agencies to provide additional information.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
UPDATE 7/1: It has passed the House as well and is expected to be signed by the President today.
Total shock and surprise… out of nowhere, the Senate unanimously passed a five-week extension to the Paycheck Protection Program application deadline, just a few hours before it was set to expire.
Sen. Ben Cardin, D-Md., the top Democrat on the Small Business Committee, said on the floor that senators picked August 8th because that’s the end of the Senate’s next work period and lawmakers are hoping to pass the next relief package by then.
Additionally, Sen. Susan Collins, R-Maine, who helped negotiate the initial small business portions of the March coronavirus relief legislation, said that the extension would make certain we “don’t see an interruption in this program” while a fifth relief bill is being negotiated in Congress.
The unanimous agreement Tuesday night was unexpected, as lawmakers have clashed over issues regarding the program, including legislation regarding how to possibly redirect the unused $130 billion.
The deadline had recently been extended for a few specific borrowers who challenged some of the requirements in court and won — but this ruling only applied to those specific instances. However, their challenge pointed out some unfair restrictions in the PPP application requirements regarding criminal records that have since been remedied (though none of the online applications I have seen have incorporated the new rules yet). Given the timing of the recent guidance, there were certainly many would-be applicants that would not have been able to apply, and hopefully this extension will help.
There also is simply a huge amount of money left — $130 billion. There was so much confusion and fear about applying and getting loan forgiveness that the funds didn’t make it to many of the intended recipients; many never even applied. For example, I helped three folks this week who thought the program “didn’t apply to them”. Now that the rules are easier to follow, make more sense, require less work, and are clearer, hopefully small business owners will come out of the woodwork and get some much-needed assistance.
The House is expected to pass the measure and the President is expected to sign it. The bill passed in the Senate by unanimous consent.
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The IRS confirmed in a press release that the July 15th due date for filing will remain as-is, with no further changes.
Treasury Secretary Mnuchin had said last week that he hadn’t ruled out moving the deadline again, but this newest announcement makes it clear that July 15th is the new April 15th.
Taxpayers who can’t meet the July 15 due date can request an automatic extension of time to file — it’s a six-month extension from the original filing date of April 15 (not the extended due date), which means it will extend the time to file to October 15, 2020.
The IRS offers a plethora of filing and payment options and reminds folks that filing an extension gets you more time to file your return, but not to pay any balance due. If you think you’ll have a balance due, I recommend you work with a professional to calculate what it might be, and submit payment with your extension, to avoid penalties and interest on late payment.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
As promised in my most recent PPP blog post, there’s tons of good news on the PPP front. This past Friday, June 26th, I led a webinar for clients and colleagues to summarize the newest guidance, give tips on next steps, and walk through the newly-updated AICPA forgiveness spreadsheet.
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So much has happened since my last PPP posts, just a week-and-a-half ago, I hardly know where to begin.
Let’s start with the good news: all of it is good news!
As you may recall, Congress passed the June 5th PPP Flexibility Act, and SBA & Treasury came out with new guidance on June 11th, which I covered extensively. They followed up by reducing the non-financial felony threshold a couple days later. Then the new forgiveness application and EZ-version (thank goodness) were released shortly afterward, on June 17th. However, I held off publishing blog posts or holding webinars on the new applications, since they were released without guidance — and like many of us, waited for the answers to our many outstanding questions.
Well, in the past week that guidance continued to trickle in, culminating in some key answers from the June 22nd Interim Final Rule (IFR) that — believe it or not, after almost three months — actually leave us with most of our concerns answered, and a clear path forward for most small business borrowers.
<This is the part where your blog writer takes her hard-earned glass of wine and raises it in a gesture of cheers.>
The confidence in the piecemeal guidance released since June 5th was evident this morning, when the AICPA decided to re-release their most excellent PPP Forgiveness Calculator Spreadsheet. Mind you, it’s in draft form, and I did find a couple mistakes when I took it on a test-run tonight — but they are quick to incorporate correction requests, and more importantly, this indicates to me that the folks there feel that we’ve gotten most of what we can expect to get from SBA/Treasury on the topic, and we can get back to work on forecasting. (Oh yeah — and tax preparation, as my clients and staff are reminding me.)
Another small win is that the SBA finally agreed to release names of recipients of PPP loans larger than $150,000. SBA loan recipients have always been a matter of public record, so I admit that I was confused by the political angle on this — but in the end, I think the compromise struck is one that will allow single-owner and other closely-held small companies the privacy they need for payroll purposes, while balancing the demands of the public to know where their taxpayer dollars are going. Reportedly, this will account for nearly 75% of the loan dollars approved.
So — what’s new?
These game-changers: – Non-owner employee compensation can be forgiven based on their full 24-weeks of pay — up to a $46,154 (24/52 x $100,000) cap — if the 24-week period is elected; – Owner compensation limits increase to 2.5 months of 2019 income capped at $100k (20.833%) if the 24-week period is elected (compared to 15.385% of 2019 if the 8-week period is used); – Borrowers may submit application early — as soon as requirements are met (including FTE calculations, meaning that even if a borrower does not meet either of the FTE Safe Harbors, they can determine the period for which FTEs must be maintained, between 8 and 24 weeks); – FTE Safe Harbor #1 (business activity limited by government mandate) will apply to the vast majority of borrowers, and frees them from performing the hellish FTE calculations; – FTE Safe Harbor #2 (the original Safe Harbor) allows choice of December 31st or the date of forgiveness application.
What does this mean?
First-off: any business owner(s) with no employees should elect the 24-week forgiveness period. Instead of the 8/52-week limit x 2019 compensation available for those who stick with the original 8-week period, those who elect the 24-week period will have 2.5 months x 2019 compensation forgiven instead. That’s an increase from 15.384% to 20.833%. And since most of these small business owners received their loan based on 2.5 times their 2019 monthly average, this will clearly earn them full forgiveness. (Furthermore, it eliminates the challenging situation whereby the loan amount was determined in months and the compensation limit was determined in weeks, putting most Schedule C and partnership filers in a position where full forgiveness was impossible.)
Secondly: once you have spent the money consistent with the rules, go ahead and submit your forgiveness application early, regardless of whether you have employees or not. You can elect the 24-week period, allowing for more generous caps, but then end the period early. There are many advantages to this approach: – having a shorter period over which to meet the FTE test, or an earlier date to qualify for the FTE Safe Harbor #2 (the original FTE safe harbor) – getting the loan off the Balance Sheet and freeing up any leverage you might need to be able to borrow from other lenders – avoiding the possibility of straddling a tax year with potentially non-deductible expenses to address – peace of mind
What don’t we know yet?
One unanswered question is whether or not the owner-compensation limitation applies to spouses or other relatives. So far there are no attribution rules, so presumably they fall under the (more generous) calculations for regular (non-owner) employees (assuming the wages are legitimate compensation for services rendered to the company).
What happens if the FTEs cannot be maintained due to a limitation on business activity that was not caused by government agency mandate? I am thinking of some professional services, for example, dog-walking, where technically the company was allowed to continue activities at full capacity, but the drop-off in business was precipitous. In this case the FTE rule will not be met, nor Safe Harbor #1 (government mandate). They could aim for the December 31 Safe Harbor #2 (the original safe harbor test), but that would be a gamble, and would presumably delay forgiveness by many months. This is not a large group of borrowers, but the consequences faced by them are certainly inequitable.
Are retirement contributions on behalf of owners allowable? Capped? The guidance makes it clear that these costs are not allowable for Schedule C filers or partners, as any funds earmarked for retirement are already counted in net income before being contributed. For owner-employees, there’s language in the EZ application — but not the main application — that makes it sound like retirement contributions are only allowed to the extent they are included in income, and are capped at 2.5 months x the 2019 amount. Why the discrepancy is unknown. This article discusses that topic in more detail.
There was concern about the announcement that S-Corp owners were suddenly not able to include health insurance in the payroll total — but it turns out that’s because by law those costs are already considered part of the Box 1 W-2 wages. It just means you can’t double-count them. (Schedule C filers and partners were already disallowed health insurance costs for forgiveness, as similarly, they are paid out of net income, which has already been counted for forgiveness purposes.) This article discusses that topic in more detail.
And for a step-by-step explanation of how to calculate forgiveness, I’ll also point you to the AICPA (no, I do not receive any remuneration from them — I’m just impressed by their resources). This step-by-step guide is quite helpful, and also points you to their greatest contribution to the PPP forgiveness thus far — the AICPA PPP Forgiveness Calculator Spreadsheet. Don’t fill out your forgiveness application or plan accordingly without it!
If you haven’t applied yet, please do. There are only a few days left in which to do so, and $130 Billion still available. The SBA has recently relaunched its Lender Match site, which connects small businesses with SBA-approved PPP lenders to get their loans approved before the June 30th deadline. I’ve had excellent luck with Cross River Bank, which has provided approximately 70% of my clients’ PPP loans, either directly or through various FinTech companies — and there was a great article in the New York Times about them recently. (Nope, those links aren’t monetized and I receive nothing from them. Just hoping to help out some small businesses.)
After a few more webinars on the topic — see the most recent one here — I plan to take a break from PPP planning for a short while and focus on tax preparation. I can’t begin to express my relief that we finally have a comprehensive PPP rule book that takes the real world into account.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Due to office closures, the IRS wasn’t able to mail out letters to taxpayers. The overdue notices are being delivered to taxpayers now — and confusing us all to no end. The IRS says the due dates printed on the notices have been extended.
I received a few panicked texts and chats from clients and colleagues this week, as a result of the receipt of IRS letters with dates such as April 6th and May 4th (mind you, today’s June 16th — making these letters 1.5-2.5 months late).
As it turns out, the IRS wasn’t able to mail out the pre-printed letters to taxpayers due to office closures during the ongoing COVID-19 pandemic. Apparently, given the amount of time it would take to reprogram IRS systems and generate newly-updated notices, “some of the notices that taxpayers will receive show due dates that have already passed.” They claim that each notice will come with an insert confirming that the due dates printed on the notices have been extended.
However, this was not the experience we had — in the first case I encountered, no insert was received, and not only had the due date passed… but the letter-date itself was more than two months’ passed; and in the intervening months, a refund check had arrived, with no explanation. The amount they were claiming was due in the most recent back-dated letter had a) since been paid, then b) found erroneous and then c) refunded. Imagine my client’s confusion.
Normally I’m a huge fan of the IRS — inasmuch as I recognize how overworked and underfunded they are. But there’s no way to view this other than a major clusterfest.
And my clients and colleagues aren’t the only ones freaking out. Basically what happened was that since the IRS was shut down for a while due to the COVID-19 pandemic, letters weren’t going out — so when they reopened, ALL these late letters went out. This was apparently the week for it — loads of people are getting letters all-of-a-sudden, with no reference to any activity since then. Furthermore, a lot of people are getting “late payment” letters for various taxes that were due 4/15, because they didn’t change their system internally to reflect the new due date of 7/15. According to Accounting Today, the IRS said Monday that these notices will be delivered to taxpayers in the next few weeks, so expect a lot of scared, confused taxpayers.
Solutions? Well, if this is due to personal income taxes, you can go to the IRS website and check to see if you have a current balance due; but to my knowledge they do not have a similar system for payroll taxes, unfortunately. In this case you could try to call the IRS, but they’re still not entirely ramped up yet, so the hold time could be interminable. In case you want to give it a try (especially if you’re concerned about penalties or interest), then the number for business services is 800-829-4933.
This is, by the way, CRAY-CRAY. I’m 48 years old and have never seen anything like this.
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As a reminder — EIDL is considered a “working capital” loan, which means it’s meant to be used to make payments that would have been required to sustain operations if the disaster hadn’t occurred in the first place. The only items that EIDL can’t be used on are a) expansion costs (which includes new assets only if they are part of the expansion; therefore regular replacement or investment in equipment for increased efficiency is allowable), b) consolidating long-term debt (so regular LOC and debt service payments are fine, but not anything that essentially refinances existing long-term debt), and c) shareholder payroll or distributions that are not in the usual course of business (in other words, you can’t use the EIDL to essentially give yourself a bonus).
From their press release today, June 15: “The SBA is strongly committed to working around the clock, providing dedicated emergency assistance to the small businesses and non-profits that are facing economic disruption due to the COVID-19 impact. With the reopening of the EIDL assistance and EIDL Advance application portal to all new applicants, additional small businesses and non-profits will be able to receive these long-term, low interest loans and emergency grants – reducing the economic impacts for their businesses, employees and communities they support,” said SBA Administrator Jovita Carranza.
EIDL assistance can be used to cover payroll and inventory, pay debt or fund other expenses. Additionally, the EIDL Advance will provide up to $10,000 ($1,000 per employee) of emergency economic relief to businesses that are currently experiencing temporary difficulties, and these emergency grants do not have to be repaid.
The SBA is offering low interest federal disaster loans for working capital to small businesses and non-profit organizations that are suffering substantial economic injury as a result of COVID-19 in all U.S. states, Washington D.C., and territories.
These loans may be used to pay debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact, and that are not already covered by a Paycheck Protection Program loan. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
To keep payments affordable for small businesses, SBA offers loans with long repayment terms, up to a maximum of 30 years. Plus, the first payment is deferred for one year.
In addition, small businesses and non-profits may request, as part of their loan application, an EIDL Advance of up to $10,000. The EIDL Advance is designed to provide emergency economic relief to businesses that are currently experiencing a temporary loss of revenue. This advance will not have to be repaid, and small businesses may receive an advance even if they are not approved for a loan.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The eligibility threshold for those with felony criminal histories has been changed. The look-back period has been reduced from 5 years to 1 year to determine eligibility for applicants, or owners of applicants, who, for non-financial felonies, have (1) been convicted, (2) pleaded guilty, (3) pleaded nolo contendere, or (4) been placed on any form of parole or probation (including probation before judgment).
The period remains 5 years for felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance. The application also eliminates pre-trial diversion status as a criterion affecting eligibility.
SBA issued revised PPP application forms to conform to these changes. The guidance and revised application forms are available on SBA’s and Treasury’s websites. SBA will issue additional guidance regarding loan forgiveness and a revised forgiveness application to implement the PPPFA in the near future.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
