Initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.
Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.
Key PPP updates include (underlines are mine):
PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, destination marketing organizations, among other types of organizations;
The PPP provides greater flexibility for seasonal employees;
Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
Has no more than 300 employees; and
Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. (Updated since to provide an option for annual comparison for those without quarterly records.)
The guidance included two interim final rules (IFRs).
The 82-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” consolidates the rules for PPP forgivable loans for first-time borrowers and outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260.
The 42-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” lays out the guidelines for new PPP loans to businesses that previously received a PPP loan.
In addition, the SBA released a three-page “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns.” That guidance includes a commitment from the SBA to make at least the first two days of the PPP application window open exclusively to applications from community financial institutions that serve minority- and women-owned businesses.
AICPA Firm Services Vice President Lisa Simpson got up at 5 am on the morning the SBA guidance was released, and was ready by 3 pm — slide deck and all — to share it with us on the AICPA Town Hall. The hour-long episode is free and available to the public — it’s all excellent, but her presentation in the first half-hour will give you almost everything you need to know. I’ll attempt to summarize it here, but honestly… you’re doing yourself a favor to sit down and watch it.
Here’s a summary of what I consider to be the highlights:
SBA program will open January 11, in phases, as outlined above (minority-owned businesses were the last to receive assistance first-time around).
March 31st is last day to apply for PPP (first- or second-round).
For payroll costs used in calculating the loan amount (x 2.5 months, or x 3.5 for the hospitality industry, including restaurants), one can use: a) 2019, b) 2020, or c) 12-months’ prior to application.
Borrowers that want a 2nd PPP must show a 25% quarterly revenue loss in any quarter of 2020 compared to the same quarter in 2019 (or annual, see below). The SBA is streamlining this for loans under $150k. It will not require supporting documentation to be submitted with the application but only later, when applying for forgiveness.
Businesses trying to show the quarterly 25% revenue drop for 2nd PPP loans can cite an annual reduction of 25% and submit copies of annual tax forms to verify. SBA and Treasury say this will help small borrowers that may not have quarterly revenue information readily available.
For details on both first-draw and second-draw maximum loan amounts and eligible costs, this Journal of Accountancy article is the best summary I have read so far.
The AICPA has been very generous in encouraging us to share its slides from the Town Halls in order to get the word out. Here are a few “best of” from Thursday’s session. Again, I encourage you to watch for yourself to get some clarity.
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In preparing webinars and zoom sessions for my clients and colleagues, I often run across other CPAs doing similar work. Some are better than others, and some leave a lot to be desired. I’ve been very impressed with the free series presented by Hannah Smolinski of Clara CFO.
Recently I presented a webinar for Bookkeeping Buds members that they graciously allowed me to share at no charge on my blog. It goes through everything Hannah mentions in the above video, however it a) focuses on the Employee Retention Credit and its interaction with PPP, and b) is directed toward accounting and bookkeeping professionals, rather than small business owners.
Hannah sums up the PPP2-eligibility portion of that webinar in this free 18-minute video quite well, so I wanted to share it with my readers (rather than record a new one of my own or make you sit through an hour and 15 minutes of accounting-speak).
But before you watch it, here’s a summary of PPP2 commonly-asked questions and answers:
Am I eligible for more money? If your business’s gross receipts declined at least 25% in at least one quarter (any one) of 2020 compared to that same quarter in 2019.
Can I get more PPP money if I got it the first time? Yes, you can get a second loan if you got a first, as long as you meet the above eligibility requirement.
Do I need to apply with the same bank that gave me my first PPP loan? No, it doesn’t have to be with the same bank. I am using the AICPA’s partnership with biz2credit because their application and forgiveness process are both streamlined; it is directly with a bank, rather than a third-party; the professional consultation of AICPA gives me confidence that the calculations are accurate.
Do I need to have applied for forgiveness already on my first loan? No, you don’t have to have already applied for forgiveness on your first loan in order to apply for a second round. You just have to certify that you have used all the PPP1 funds.
What if I didn’t apply first-time around? You are eligible to apply for a loan under the original rules, meaning you don’t have to prove the decline in revenue like second-time borrowers.
Hannah also provides a free spreadsheet with a tab to run the “25% decline in gross receipts” test, if you don’t already use QuickBooks Online (or if you use QBO Simple Start, which does not have the same reporting features).
She goes through both the spreadsheet tab and the QBO reporting option in the video. (Note: this sheet is an additional tab she’s added to her already-existing free PPP Forgiveness Calculator Excel workbook; and while I think she’s done a very good job with it, I prefer the AICPA version, also free to the public. They also offer a free FTE calculator, which you will need if you are not able to claim any of the safe harbors.)
Once you’ve determined that you qualify, you’ll want to know how to calculate the maximum amount of PPP2 to which you’re entitled. The AICPA offers a free calculator for that as well, but I noticed that Hannah has a low-cost ($37) one-hour webinar recording from January 6th available; she generally does a nice job explaining things to business owners who might be doing their own bookkeeping, so while I have not myself seen the video, it feels worth sharing with you here in case it is helpful.
I do not have any professional affiliation with Clara CFO and do not receive any payment from her or AICPA for promoting their offerings — I just think they’re really good and want to share!
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.
I will be spending the afternoon in webinars learning the details of the recent financial relief package that will become law soon, including “PPP2”, and will share what I learn in a post here later today. In the meantime, the National Association of Tax Professionals has prepared a summary for its members — it’s the clearest, most succinct explanation of “what you need to know” that I’ve read in the past two days. Many thanks to them for allowing us to pass along this info to clients.
Both houses of Congress voted to pass the latest COVID relief legislation and all indications are that the president will sign it into law. We know that more guidance will be provided as this rolls out, but here are the highlights as we know them:
PPP and small business support: New COVID-19 relief package provides much needed support for small businesses. Business expenses paid for with the proceeds of PPP loans are tax deductible, consistent with Congressional intent in the CARES Act. In addition, the loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less. Unspent funds totaling $138 billion will be reinvested in the PPP program.
Economic impact payments (EIP): The bill includes a second round of EIPs for qualifying Americans.
The IRS will use the data it already has in its system to begin making payments at the end of December through the first two weeks of January. If the IRS has your direct deposit information, you will receive a payment that way. If it does not, you will receive your payment as a check or debit card in the mail. If you are eligible but don’t receive your check for any reason, you can claim the payment when you file your 2020 taxes in the spring of 2021.
In regards to eligibility, any person who has a valid work-eligible Social Security number (SSN), is not considered as a dependent of someone else and whose adjusted gross income (AGI) does not exceed certain thresholds (see below) is eligible to receive the credit. This means workers, those receiving veterans’ benefits, Social Security beneficiaries and others are all eligible.
Spouses of military members are eligible without an SSN
An adopted child can use an Adoption Tax Identification Number to be eligible
Under the CARES Act, joint returns of couples where only one member of the couple had an SSN were ineligible for a rebate. This latest round of relief changes that provision. These families will now be eligible to receive payments for the members of the family who have SSNs. This change is retroactive, meaning those who fall under this category who missed out on the first round of EIPs can claim that money when filing 2020 tax returns in the spring of 2021.
The full credit amount is $600 per individual, $1,200 per couple and $600 for children. It is available for individuals with AGI at or below $75,000 ($112,500 for heads of household), and couples with AGI at or below $150,000. If you have children, you will receive an additional $600 per child.
For those above this income level, your tax rebate amount will be reduced by $5 for each $100 your AGI exceeds the above thresholds.
This means:
An individual without children will not receive any rebate if their AGI exceeds $87,000.
A couple without children will not receive any rebate if their AGI exceeds $174,000.
A family of four will not receive any rebate if their AGI exceeds $198,000.
The IRS will use the same methodology for calculating payments as it did for the first round of economic impact payments.
Unless obtained by fraud, rebate checks do not need to be repaid. If an individual experienced an income loss in 2020, or if they have an increase in family size, they may be able to claim an additional credit of the difference when the individual files their 2020 tax federal income tax return in spring of 2021.
If you are eligible and the IRS does not have your direct deposit information, you will receive your payment as a paper check or a debit card as long as the IRS has your address. If the IRS does not have updated contact information for you, you can claim the payment when you file a tax return in spring 2021.
Someone who is claimed as a dependent on another taxpayer’s tax return is not eligible to receive the $600 refund check themselves. Children 17 and older are not eligible for the $600 per child tax credit.
For those with taxable income, you will need to file a tax return for the 2020 tax year, which you can do during the coming filing season that is expected to begin in late January and end on April 15, 2021. Those with little or no taxable income are encouraged to use the IRS’ free file program.
Other than Social Security beneficiaries (retirement and disability), railroad retirees and those receiving veterans’ benefits, individuals with no taxable income will be able to file a simple form provided by the IRS specifically for the purpose of receiving the rebate check.
Social Security retirement and disability beneficiaries, railroad retirees and those receiving veterans’ benefits do not need to file to receive their rebate. The IRS has worked directly with the Social Security Administration, Railroad Retirement Board and the Veterans Administration to obtain information needed to send out the rebate checks the same way benefits are paid.
The credit is not taxable, consistent with other refundable tax credits.
The rebate is considered a tax refund and is not counted towards eligibility for federal programs for both income and asset test purposes. The rebate checks are not subject to the majority of offsets, including student debt and state debts. The only administrative offset that will be enforced applies to those who are subject to a child support garnishment court order.
A family with a child born in 2020 is eligible for the $600 per child rebate amount (assuming all other requirements are satisfied). The IRS will calculate the payment based on the most recent tax data in its system. If a child was born since the family’s last filing, the family will not automatically receive the $600 rebate amount for the child born in 2020. To receive the credit the family can claim the $600 credit on their 2020 tax return filing made in spring 2021.
If you believe you are eligible for an economic impact payment but did not receive a round one or round two payment, you will have the opportunity to claim the payment on your 2020 tax return. This year’s tax forms will provide a place for individuals to claim the payments. If you don’t normally file taxes and are eligible for a payment, make sure to file a return this spring to claim the payments.
The IRS has not announced the exact date the coming filing season will begin, but it typically begins near the end of January. If you need to update your information by filing your tax return, keep an eye out for an IRS announcement about the start of the filing season.
Individuals can claim the payment by filing a simple tax return when the tax filing season opens in late January 2021.
Unemployment assistance: For those who are unemployed, the pandemic unemployment insurance program will be extended by 16 weeks. Supplemental federal unemployment benefits of $300 per week will continue into April 2021 instead of ending in December.
Rental assistance: The current CDC eviction moratorium will be extended until Jan. 31, 2021.
Student loans: Extension of student loan forbearance provisions created in CARES and extended by executive order, from the current expiration date of Jan. 31, 2021 through April 1, 2021.
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.
In an effort to push Congress into action, the IRS reiterated its stance on the PPP last week.
Late last week, the IRS and Treasury issued both a revenue ruling and a revenue procedure, doubling down on their stance that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible.
This isn’t new news, of course. The IRS is bound to statute on this one and doesn’t have any wiggle room — only Congress can legislate on the topic of what is taxable and deductible, whereas the IRS only has administrative oversight in this arena. They made it clear very early in the game — April 30th, in fact — that they had no intention of accepting deductions for expenses that were paid for with PPP funds.
But in the ensuing months, Congress — despite broad bipartisan support for a measure to render these costs deductible — has been stuck in gridlock and failed to pass legislation making it so. This recent action on the part of the IRS seems designed to signal Congress that only by their action will the original intent of the CARES Act be realized.
However, the IRS took this particular set of guidance one unfortunate step further, at least as far as my clients are concerned.
“If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not.”
Now, I have been attending the AICPA Town Halls since nearly the beginning of the pandemic, and they are still strongly recommending that no one apply for forgiveness before year-end unless: 1) they need to sell their business; 2) loan covenants are at risk; or, 3) they need to reduce FTEs after meeting a date-driven safe harbor.
Part of the reason for this suggested delay is the aforementioned statutory requirement that prohibits the IRS from permitting any deductions for expenses paid for with non-taxable income. (Also: likeliness of legislation authorizing automatic forgiveness under a certain threshold; and the need for further guidance in many areas that remain unanswered.)
The idea was that if forgiveness was not granted in 2020, then the deductions could be made as usual on tax returns filed in the first-half of 2021. When forgiveness was eventually granted on these PPP loans, one of two things would have happened: 1) Congress would since have acted to protect the deductions and therefore PPP funds could be accepted into non-taxable income; or, 2) Congress would not have acted, in which case the PPP income would effectively be made taxable in 2021.
To me, whether the expenses paid with PPP proceeds were deductible hinged on whether forgiveness was obtained; as a result, I strongly maintained that those expenses did NOT become nondeductible until that “condition subsequent” occurred. As a result, if a business were filing its 2020 tax return before word on its forgiveness application had come down from the SBA, the expenses would be fully deductible. After all, we have a little something called the “tax benefit” rule, which allows a taxpayer a full deduction if at the time of filing the return, no event has occurred to render the amount nondeductible. Then, if a future event occurs that is fundamentally inconsistent with the premise on which the previous deduction was based (for example, an unforeseen refund of deducted expenses, or in this case, the forgiveness of a loan), the taxpayer must take the deducted amount into income. Applying the principles of Section 111 to PPP loans, the taxpayer would be entitled to a full deduction in 2020, with a potential income pick-up in 2021 when the loan was forgiven.
But with this recent IRS guidance, as Tony points out — he was wrong (again).
According to the Ruling, it matters not whether the application for forgiveness has been filed by the time the tax return is ready to go; rather, what matters is that the taxpayer apparently knows, in their heart of hearts, that the loan will ultimately be forgiven. After all, as the Ruling explains, “Section 1106(b), (d), and (g) of the CARES Act, and the supporting loan forgiveness application procedures published by the SBA, provide covered loan recipients… with clear and readily accessible guidance to apply for and receive covered loan forgiveness,” a sentence which I would have found laughable had the lies contained within it not ruined the past six months of my life.
I won’t get into the details of what it means to “reasonably expect” forgiveness, or determine partial forgiveness, or whether or not the new safe harbor applies if you “reasonably expect” wrong. (I’ll let Alan Gassman, another fan of Tony’s, dive into those weeds.) But as a short summary: 1) You can deduct expenses on your 2020 return if you find out before the return is filed that the PPP loan didn’t get forgiven or if you decide not to apply for forgiveness; 2) If you guessed wrong about the amount of forgiveness (and therefore deductions), you can either a) amend the 2020 return to adjust the disallowance, or b) deduct the improperly disallowed expenses for 2020 in the year forgiveness is determined.
Somehow, with not only a revenue procedure but also a revenue ruling, the IRS managed not to address two big issues that their rulings raise: 1) How should a Schedule C filer handle the deduction question? For a self-employed person, it’s not the expenses that determine forgiveness, but rather a calculation based on their 2019 income. 2) Which deductions will be limited, and in what order (payroll, rent, mortgage interest, utilities)? This has serious ramifications for the §199A Qualified Business Income deduction, Research & Development credits, and the §163(j) Interest Deduction limitation.
But I am not even going to touch on those two issues. Why? Because I truly believe the IRS made this announcement to rile up Congress members into finally taking action. It might have worked.
The leaders of the Senate Finance Committee, chairman Chuck Grassley, R-Iowa, who is now battling a coronavirus infection, and ranking member Ron Wyden, D-Oregon, blasted the guidance issued by the Treasury. “Since the CARES Act, we’ve stressed that our intent was for small businesses receiving Paycheck Protection Program loans to receive the benefit of their deductions for ordinary and necessary business expenses,” they said in a joint statement Thursday. “We explicitly included language in the CARES Act to ensure that PPP loan recipients whose loans are forgiven are not required to treat the loan proceeds as taxable income. As we’ve stated previously, Treasury’s approach in Notice 2020-32 effectively renders that provision meaningless. Regrettably, Treasury has now doubled down on its position in new guidance that increases the tax burden on small businesses by accelerating their tax liability, all at a time when many businesses continue to struggle and some are again beginning to close. Small businesses need help maintaining their cash flow, not more strains on it.”
Grassley and Wyden said they would continue their efforts to clarify in any end-of-year legislation the intended relief in the CARES Act to help small businesses at this critical time. “We encourage Treasury to reconsider its position on the deductibility of these expenses, and the timing of those deductions, to provide relief to the small businesses that need it most,” they added.
In the meantime… as an accountant, what do you tell your clients? As a small business owner, what do you do?
Well, if I’m right, and Congress is duly riled, then hopefully we’ll finally see some movement here, preferably before the end of the year, but (dear lord please) at least before tax season. At which point — poof — it becomes a non-issue (with the exception of the countless hours I and others have spent worrying and writing about it).
Tax Filing Approaches for Consideration 1) Wait and see • Use extensions until additional guidance or legislation is available • Pass-through entities don’t need to be concerned until March/April 2021 deadlines 2) File return and pay taxes • Assumes expenses paid with PPP funds will not be tax deductible • If this changes, the borrower can file an amended return 3) File return and deduct expenses** • Contrary to current guidance (but in the spirit of the PPP legislation)
For what it’s worth, Bill describes himself as a “wait and see” kind of guy. (I strongly suggest watching Bill’s participation in the most recent AICPA Town Hall — from 32:00 through 52:40. His logical process, description of history and legislative intent, and arguments are thought-provoking.)
I’ve already spoken with my tax partner, and our plan is to put all partnership and corporate clients on extension to avoid the unnecessary cost of approach #2 and the unnecessary risk of approach #3. Haven’t yet decided how to handle Schedule C self-employed filers… but also hoping we won’t have to cross that bridge.
In the meantime, it’s business as usual, trying to close out books and prepare for 1099s… as if it were any other pandemic year-end.
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In today’s AICPA Town Hall, they reviewed the reasons a business might decide to apply for PPP forgiveness now — even though we have been consistently recommending to loan recipients that they wait until there’s movement from Congress on an automatic or streamlined forgiveness program (and continue to do so).
Basically, unless you are: 1) selling your company; or, 2) potentially violating loan covenants because of the PPP being represented as a liability; or, 3) needing to lay off staff after meeting FTE reduction requirements; …you should still hold off on applying for forgiveness.
However, if you are in one of the groups above, then consider the AICPA‘s list of “Factors impacting timing of forgiveness application”: • Has the borrower spent the full amount of PPP funds? • Is borrower trying to sell the business? See Oct. 2 SBA Procedural Notice • Is the loan under/over the $150k dollar amount of potential threshold for simplified forgiveness in Congress? (New form for <$50K) • Has tax planning around timing of deductibility of expenses paid with PPP funds been considered? See Aug. 20 discussion with Ed Karl (AICPA VP of Tax) • Does the borrower need to make business operating decisions that may include FTE reductions? (See AICPA FAQ #10, below) • Does borrower want to get PPP debt off the books? Are there loan covenants to consider? • Is the lender even accepting applications?
It’s important to weigh all of these criteria before making the decision to apply for forgiveness.
And for reference, here’s AICPA FAQ #10: If a borrower applies for forgiveness before the end of the covered period, how does the FTE reduction safe harbor work in operation?
The instructions for the Form 3508 forgiveness application indicate that the borrower includes the number of FTEs at the end of the covered period OR the date the application is submitted. The SBA has provided information to lenders as follows: “When a borrower submits the completed application and a lender has processed the borrower’s forgiveness application, the borrower is no longer bound to the FTE restrictions. The covered period ends when the borrower successfully applies for forgiveness.”
To summarize: we still recommend, as does the AICPA, that unless you fall into one of the groups above, you hold off on forgiveness applications for now. Work with your CPA to run the numbers to make sure you meet the requirements as they currently stand — knowing they might get easier, but protecting yourself if they don’t — but hold off on the actual application until Congress takes some action, which will be coming eventually… it’s a question of “if”, not “when”.
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My colleague Eric Krienert will be teaching a one-hour webinar on October 22 on the topic of the Paycheck Protection Program. This session will provide an overview from a cooperative perspective of loans and forgiveness under the PPP. Beginning with the economic necessity certification, to qualifying expenses, to the spending timeframe and FTE limitation — an explanation will be provided on restoring FTEs and wage limitation before looking at the loan forgiveness application process. The session will conclude with a review of tax and other considerations.
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Another late-night guidance drop from the SBA — this time, good news for PPP borrowers of $50,000 or less… and somehow managed without the Congressional action we’ve been waiting for that seems to have all but stalled out.
The SBA has released a new, streamlined forgiveness application for these borrowers (and has eased the burden on lenders as well) — but notably, the requirements are exactly the same as prior to this newest Interim Final Rule. It’s just the simplified application and reduced documentation that make it easier. This means that small business owners still have to meet all the forgiveness rules that were in place before this most recent development — and they must certify as such on the application.
So on the one had, it’s great news — on the other, I’m not sure how much this will help anyone… it’s essential to run the numbers and collect the documentation regardless, to confirm compliance, as well as for support should the forgiveness be audited or challenged.
This also is a far cry short of the “under $150,000” floor that has been introduced by numerous members of Congress. Maybe this is just a start, and it will be increased with a legislative act?
Regardless… because the calculations and documentation must be dealt with despite the shorter application (and kept for your permanent records), I still recommend using the free AICPA tool — PPPForgivenessTool.com — as it does an amazing job of taking care of much of the number-crunching behind the scenes, and turns out an application and supporting documentation pdf packet that should be just the thing for your files. It’s the best PPP calculation resource I’ve tested yet (and believe me, I’ve tested quite a few).
Given the slow pace of SBA forgiveness and the likelihood that there will be more relief coming from Congress after the election, the AICPA continues to recommend that borrowers hold off on applying for forgiveness for now — unless they need to because they’re selling a business or have restrictive debt covenants.
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Screenshot from 9/3/20 AICPA Town Hall of excerpt of new PPP rule index
The AICPA has come out with yet another amazing, free tool to help business owners administer PPP loans and accountants to advise them.
If you’ve been playing along, you know that the Small Business Administration (SBA)’s troubled and challenging Paycheck Protection Program (PPP) has had a ridiculous number of clarifications, FAQs, Interim Final Rules (IFR), and other guidance. Figuring out which piece of info is hidden in which document is nearly impossible.
The Paycheck Protection Program (PPP), under Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides small businesses with forgivable loans. Administered through the Small Business Administration (SBA), the PPP loan proceeds are to be expended on payroll, rent, mortgage payments, or utilities. The SBA, in conjunction with the Treasury, have released Interim Financial Rules (IFRs) and Frequently Asked Questions (FAQs) to provide guidance.
This searchable index allows users to easily find guidance on the PPP loan application, eligibility, allowable use of funds, loan forgiveness, maturity date, and more.
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The EIDL has two portions: an advance grant, and a 30-year loan.
The SBA provided guidance recently on the interaction of PPP loan forgiveness with advances on the Economic Injury Disaster Loans (EIDL), in the form of adding three Q&As to its August 11th FAQs.
Many of my clients, as well as countless other small businesses, applied for loans under both the PPP and EIDL programs and received them. For EIDL, they could receive 1) an advance grant (generally measured at $1000 per employee), which in theory was automatically forgiven, and 2) a 30-year working capital loan at an interest rate of 3.75% (2.75% for nonprofits). Applicants could apply for or receive either the advance grant, the loan, or both.
Though the CARES Act does not call for it, and the SBA did not expressly state it, the AICPA began reporting some months ago (presumably based on information received from their regular meetings with Treasury) that the EIDL advance grant would have to be subtracted from PPP forgiveness. There was much disagreement in the CPA world as to whether or not this was indeed the case, as the SBA forgiveness application could be interpreted either way.
However, with these new FAQs, the SBA has put an end to that debate, confirming the AICPA’s position that the EIDL advance grants must be subtracted from PPP forgiveness.
The good news here is that at least these will, in effect, be converted into the PPP 1%-interest loans, rather than the 3.75% EIDL. The bad news is that the PPP loan term is only 2- or 5-years (depending on when the loan was signed), rather than the 30-year EIDL.
Therefore, if you have a large EIDL advance grant (at one point these were capped at $10,000, but there are some out there for more than this amount), and you will be challenged by paying it back, take a look at your PPP loan term. If it is 2 years (for loans prior to June 5), then contact your PPP lender to extend the PPP loan to a 5-year period.
This would be particularly important if the EIDL advance grant was larger than your PPP loan, as in these cases there will be no forgiveness.
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SBA gives borrowers a second chance at forgiveness.
Reported in yesterday afternoon’s issue of Accounting Today, “the U.S. Small Business Administration (SBA) has posted rules about how businesses who have been turned down for forgiveness of their Paycheck Protection Program loans can appeal the decision, and about how forgivable PPP loans interact with the SBA’s Economic Injury Disaster Loans.”
The SBA’s Office of Hearings and Appeals has been charged with PPP loan forgiveness denials, which means CPAs will not be permitted to represent the clients they have helped through the PPP process.
According to Accounting Today: “‘The process is a formal legal process, with representation of the borrower limited to attorneys,’ noted Ed Zollars, a partner in the CPA firm of Thomas, Zollars & Lynch, in a blog post Wednesday for Kaplan Financial Education about the new rules. ‘The special status granted to CPAs to practice before the IRS does not carry over to practice before the Small Business Administration.'”
The interim final rules on this matter take effect immediately, though comments are still being accepted.
“Business that appeal the loan forgiveness denial will need to have a copy of the loan review decision that’s being appealed, a statement about why the decision was erroneous, the relief that’s being sought, signed copies of payroll tax filings filed with the IRS and the state, as well as various federal tax returns and schedules… the SBA also wants the name, address, phone number, email address and signature of the appellant or attorney. The maximum length of the appeal petition should be 20 pages, not including any attachments.”
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