Forgiveness Applications on Hold

07/30/2020 8:42:56 AM

Forgiveness Applications on Hold Until at least August 10

 

The SBA is not accepting forgiveness applications until August 10, 2020, and this date will be subject to extension if any new legislative amendments to the forgiveness process necessitate changes to the system. Further, final Treasury guidance concerning PPP Forgiveness Applications, which was expected in early July, is now not expected until after related federal legislation is resolved.

PPP Forgiveness Update

07/28/2020 3:12:05 PM

Please see the following update regarding the PPP Forgiveness process from our friends at First Citizens Bank:

Legislative Developments:

There continues to be legislative developments, and a preliminary agreement has been reached on the Phase IV/CARES Act 2.0 Coronavirus package. A few provisions – which are subject to change because negotiations are ongoing – are:

  • The proposal includes a streamlined loan forgiveness process for small loans under $150,000 and an intermediate forgiveness process for loans under $1 million.
  • Loan forgiveness will be expanded to include certain supplier costs, operating expenses, and damage caused by rioting.
  • There will be a more generous PPP calculation for farmers and ranchers based on their 2019 gross income.

SBA Guidance on Forgiveness:

Procedures for Lender Submission of PPP Loan Forgiveness Decisions and SBA Forgiveness Loan Reviews were released Friday afternoon. We are currently reviewing these procedures to understand how they impact our process. The SBA’s PPP Forgiveness Platform is slated to go live and begin accepting Lender submissions on August 10, 2020. However, it was also noted in the guidance that based on the legislative developments above, if any new legislative amendments to the forgiveness process necessitate changes to their system, that this date would be subject to an extension.

As of now, August 10th is the earliest ‘target’ date for the SBA’s platform to go live however it is highly likely to get extended due to additional legislative changes. First Citizens is confident our submission system will be ready whenever the SBA platform does go live.

Several major news outlets have reported some discussions included in the Cares Act 2.0 package regarding the possibility of a second PPP loan for severely impacted businesses however nothing has been finalized as of yet so I don’t have any information on that program at this time.

When to File PPP Forgiveness Applications

06/24/2020 3:40:04 PM

We finally received a TINY bit of guidance on the PPP loans and when to file PPP forgiveness applications. 

It’s true! The details are below. BUT we are not recommending you be in any big hurry to file for forgiveness. Why?

  • We do NOT recommend using the 8-week covered period because of the complex application process. Only if you have extenuating circumstances would we recommend this path. For instance, if you are planning to sell your practice and need forgiveness first, or you know your FTE count will be too low at the later 24-week date, then this might be recommended. 
  • We are still HOPEFUL there will be blanket forgiveness for PPP loans under $150K. This would negate the application process entirely for many recipients. It could be wishful thinking certainly. Nonetheless, why spend energy on something that may turn out to be unnecessary?  

With that said, here are the updates…

Recent guidance released by the Treasury Department has clarified when PPP borrowers can apply for forgiveness.

Here are some scenarios:

  1. Submit your forgiveness application before the Covered Period ends.
    • If there are Salary/FTE reductions, you must account for those reductions for the full 8 or 24-week period. Borrowers are not allowed to prorate reductions when applying before the Covered Period ends.
    • The forgiveness amount requested must be spent or incurred in the period stated on the application. For instance, a borrower applying 2 weeks before the Covered Period ends cannot include anticipated costs for the remaining 2 weeks.
  2. Submit your forgiveness application as soon as the Covered Period ends. 
    • This option is ideal for borrowers who didn’t reduce wages or FTE during the Covered Period, and who don’t need to wait for the Safe Harbor date.
  3. Submit your forgiveness application within 10 months after the Covered Period ends.
    • This option gives borrowers a chance to restore wage and FTE amounts by 12/31/2020, thus limiting forgiveness reductions.
  4. Submit your forgiveness application after the 10-month deferral period.
    • If borrowers do not apply for forgiveness within 10 months after the Covered Period ends, payments on principal and interest will begin.
    • Even if payments have been made after the deferral period, borrowers can still apply for forgiveness before the loan matures.
  •  

PPP Tracker Spreadsheet Updated

06/18/2020  7:20:31 PM

We have updated the PPP tracker spreadsheet, find it HERE. As a reminder, the revised PPP rules allow for a 24-week period versus the original 8-week period. The goal now is to use PPP funds exclusively on payroll over the 24 weeks.  This will allow for the easiest forgiveness application process!

Not Too Late for a PPP Loan

06/16/2020 2:02:38 PM

It’s not too late for a PPP loan, here’s why. As you may recall, the PPP program was modified from an 8-week covered period to a 24-week period covered period.  This change makes it very easy to use all PPP proceeds on payroll over a 24-week period and achieve 100% forgiveness of the loan.  It will require very little documentation and a relatively easy application process.  For these reasons, if you have not applied for a PPP loan yet, consider doing so now! The deadline for application is June 30, 2020.  There is currently over $1 billion still available in the SBA PPP fund.

PPP Changes Await Final Signature

06/05/2020 2:46PM

Yesterday the Senate passed the PPP modifications that the House passed last week, now these PPP changes await the final signature. Due to the overwhelming bipartisan support, it is expected that the President will sign the bill into law. The modifications require a new strategy but provide significant opportunity to ensure practices receive 100% forgiveness. Of course, these changes will still require the much-awaited guidance to be issued by the Treasury and SBA. But it does allow us more time to wait for it.

Summary of changes to the PPP loan program: 

8-week covered period extended to 24 weeks 

Practice tip: The loan was based on 2.5 months, approximately 11 weeks, of payroll, and you now have 24 weeks to spend it. This eliminates most of the challenges of the program and allows most practices to utilize 100% of the PPP money on payroll and ensure total forgiveness.

75% rule reduced to 60%

Previously 75% of PPP proceeds had to be used on payroll or the forgiveness amount would be reduced. But now only 60% of the PPP proceeds must be used on payroll. There’s a caveat though! It’s now all or nothing. If you do not spend 60% of the funds on payroll you will get ZERO forgiveness. This is a drastic change from the previous 75% rule.

Practice tip: Due to the 24-week covered period, this rule should not be a problem. We recommend trying to spend 100% of the loan amount on payroll over the 24 weeks. That will make the application process much easier since you will only need to provide payroll reports to support your forgiveness application.

Rehire date moved from 6/30/20 to 12/31/20

Practice tip: Your practice now has until 12/31/2020 to rehire employees back to the 2/15/2020 level.

Required FTE goal for the rehire exemption is reduced if you are unable to rehire people or business has declined due to HHS, CDC, or OSHA requirements regarding COVID-19

Practice tip: Continue to plan on rehiring people by 12/31/20. However, if guidelines are issued that restrict the number of people allowed in the office, this will give you flexibility in adjusting staffing levels to a new normal. This exception is new, and we will need new guidance to clarify it.  

New PPP loans will have a minimum maturity of 5 years

Practice tip: With the extension to 24-weeks, the goal should be 100% forgiveness of the PPP loan. However, if you do not attain this goal, consider contacting your bank to modify the term to 5 years if your loan was finalized under the shorter 2-year term. However, we recommend avoiding this unless truly needed. 

Of note regarding changes to the PPP program:

  • We still don’t know about
    • payments to related parties
    • retirement
    • miscellaneous other payments…but none of this may matter now.
  • The $15,385 per person payroll limit may be increased to $46,154. We recommend limiting the expected forgivable portion to $15,385 per person until we get guidance since the new 24-week period should allow you to utilize all other PPP proceeds on staff payroll.  
  • The forgiveness application will be completely changed.
  • The PPP Expense Tracker tool will be updated.
  • Although utilities, health insurance, SUTA, and other small costs are still eligible, they become less important. Rather than worry about tracking small receipts, focus on big items that are easy to provide to the lender—payroll primarily, and rent. This should make the forgiveness application process quick and easy.  
  • Forgiveness applications won’t be filed until after the end of the year due to the 12/31/2020 rehire date.
  • At this time items paid with PPP funds are not deductible expenses. There was previously talk that Congress would revise it so the items would be deductible. However, given the favorable changes to the program passed here, there may be less motivation to do so.

One of our ADCPA colleagues has a great webinar on the changes outlined in this post. Keep in mind, though, they are in Massachusetts where practices were not blessed to reopen as early as states like Texas. Click here to see the recorded webinar.

PPPs Below $150K: Auto-forgiveness Requested

06/04/2020 11:11:07 PM

The Consumer Banking Association and the Banking Policy Institute recently sent a letter to the Small Business Committees in both chambers of Congress.  Their goal was to encourage legislation that will essentially auto-forgive PPP loans below $150,000.  The motivation seems to be that these smaller loans will cost the banks more to service than they will earn at a 1% interest rate.

Whatever their motivation, it would be great for many of you as well.  Remember, the intention of the PPP program was to help keep people on payroll.  It will now be fairly easy to spend all the PPP proceeds on payroll and, thereby, fulfill its purpose.  Forgiving these smaller loans automatically will reduce documentation headaches for both your practice and the banks.  Win-win!  (“Why will it be easy now to spend all the PPP proceeds on payroll?” you ask.  Because the period has been extended from 8 to 24 weeks.  Yes, it’s true-details coming in the next post!)  

This letter appears to be the only action so far.  No bill is drafted or referred to a committee in Congress, meaning there’s nothing official in the works yet.  We’ll be watching for you!  

Tentative PPP Program Changes Announced

06/01/2020 11:58AM

Thursday, the House passed H.R.7010 to modify certain provisions related to the forgiveness of loans under the Paycheck Protection Program (PPP). The tentative PPP program changes announced would extend the current 8-week loan forgiveness period, as well as lower the payroll portion from the current 75% requirement.  This bill has not passed the Senate or been signed by the President and is, therefore, not enacted.  We expect some changes to the final bill.  But it is very likely to pass in some form since there is bipartisan support on this issue.  The bill will include other changes as well, and we will put out those details once they are final.  No need to fill our valuable brain space with hypotheticals!  Click to read the entire Bill.

Paying Employee Bonuses Using PPP

05/27/2020 2:47PM

There are still plenty of questions to be answered regarding PPP forgiveness details!  BUT recently released regulations have addressed the issue of paying employee bonuses using PPP proceeds.  The Department of Treasury has issued a ruling stating that hazard pay and bonuses are forgivable payroll costs during the PPP Covered Period.  This is a great answer to a question you have been asking.

This ruling is a very broad interpretation of compensation.  But it provides a good strategy to help achieve the 75% payroll costs requirement for full PPP loan forgiveness.  This compensation rule also applies to furloughed employees.  So providing hazard pay, or keeping your employees on payroll even if they didn’t work, will still qualify as a forgivable payroll expense.  The caveat to remember when paying any type of compensation–$15,385 per employee is the maximum forgivable amount during the Covered Period.

Your next question:  Does that mean I can pay my spouse a bonus and include it in forgivable compensation?  Unfortunately, that question remains answered.  We expect the SBA to issue specific guidance concerning related parties…someday.

Retention of PPP Documentation

05/26/2020 5:00PM

So, what are the requirements for the retention of PPP documentation? The SBA requires that PPP borrowers retain all related loan and forgiveness documents for 6 years after:

  • The date of full forgiveness OR
  • The date the loan is fully paid off if only partial forgiveness was achieved.

That’s a LONG time.

Here is what that entails for loans under $2 million:

  • Documentation submitted with the PPP loan AND forgiveness application
  • Payroll costs from the previous 12 months before applying AND during the 8-week Covered Period, which includes:
      • Salary/wages paid to employees (capped at $100k annually for each employee)
      • Health insurance premiums paid (if not taken out of the employees pay)
      • Employer matching retirement expense
      • State/local taxes assessed on employee wages (TWC/TXSUI for Texas dentists)
  • Any documents from EIDL’s you received in 2020 (including the EIDL advances for PPP loans). Follow the details regarding Forgiveness Application documentation that was posted previously. To make life easier, make two copies when gathering all the required documents needed – one for submission and one for record retention.
  • Documentation showing material compliance with PPP requirements

You are in PPP compliance if you:

  • Keep up with the documentation described above
  • Keep check stubs/receipts verifying you have been spending your loan on the required items (payroll, rent, mortgage, utilities)
  • Can verify the certifications made on the original loan application, and
  • Have not received a PPP loan twice for the same business if you applied to multiple banks

It wouldn’t hurt to review the loan documents from your PPP lender to make sure that the bank doesn’t require any sort of additional documentation for their records.

Keeping up with these items is vitally important for the next 6-7 years. While the SBA has indicated that their audit resources will be mostly dedicated to borrowers who have larger loans (over $2 million), the SBA has the authority and right to access and review the described items above for any PPP borrower during the 6 years.

PPP Forgiveness-Owner Salary Limits

05/26/2020 12:08PM

Let’s start with the same broken record disclaimer that we’ve now said no less than 100 various times…we still have not received guidance on the PPP forgiveness provisions.  Still.  Even though it was due to us in late April.  Even though many of you are well into your 8-week period.  Are we frustrated?  Yeah, we’re frustrated!  So anything we advise at this time is still subject to change. However, here is some information regarding PPP Forgiveness-Owner Salary Limits.

SBA released the PPP forgiveness application recently, and it revealed a change.  Not a good change, but one that needs to be highlighted.  As an owner/employee of your practice, the limit on wages that can be forgiven under PPP provision per the CARES Act is $15,385 over the 8 weeks.  You know this well by now.  BUT, now it is limited even further IF you paid yourself less than $100K in 2019.  According to the newly released forgiveness instructions, forgivable owner wages are capped at the $15,385 amount, OR the 8-week equivalent of compensation in 2019, whichever is lower.  In plain English, if you took a salary in 2019 less than $100K, you can’t increase your salary now not to help increase PPP forgiveness.  

For instance, if you made $75K in 2019, your salary over the 8-week PPP period is limited to $11,538.  Not $15,385.  If you did not take your required wages in 2019, you are limited to $0.  In those cases, if you paid, or will pay yourself the $15,385 previous maximum, it will not all be forgiven.  SBA could revise this position in future guidance, but there is no expectation it will do so.  

Documentation Required for PPP Forgiveness

05/19/2020 5:16PM

Please bear with this post.  Some things just can’t be easily be changed to plain English, as is the case with the following explanation of documentation required for PPP forgiveness.

Payroll Documentation

Note:  The “Covered Period” for this section is

  • the 8-week period beginning when you received PPP funds OR
  • if you are a biweekly or weekly payer, the 8-week period beginning the first day of your next payroll after you received your PPP funds.
Required documentation of compensation:
  • Payroll reports for your Covered Period.
  • 2Q 2020 941 and SUTA forms.
  • Proof of contributions to employee health insurance and/or retirement plans during your Covered Period.
      • Note:  At this time this includes only payments for “employees” which include S corp owner employees, but does not include self-employed individuals operating a sole-prop/Schedule C business.
      • Note:  This does not include amounts that are withheld from employee checks that you pay on their behalf.
  • The amount of Full Time Equivalent (FTE) employees on the payroll during the following time periods:
      • Note:  Instructions for calculating FTE coming soon.
    • Feb. 15, 2019 – June 30, 2019 OR Jan. 1, 2020 – Feb. 29, 2020, whichever you prefer and you would want the lower figure.
    • Average FTEs during the Covered Period.
    • The amount of FTEs on June 30, 2020 (if you are using the FTE Safe Harbor to avoid FTE forgiveness reduction).

Nonpayroll Documentation (i.e. rent, utilities, mortgage interest)

Note:  The “Covered Period” for this section is

  • the 8-week period beginning when you received PPP funds.
  • Business mortgage interest payments
    • copy of the amortization schedule AND cancelled checks during the Covered Period OR
    • detailed statements for the period Feb 2020 through one month after the end of the Covered Period AND cancelled checks during the Covered Period.
      • NOTE: The term “mortgage” includes your practice loans as long as the obligation is secured by property of the practice (i.e. equipment)
  • Building rent/equipment lease payments
    • copy of the rental agreement AND cancelled checks during the Covered Period OR
    • detailed statements for the period February 2020 through one month after the end of the Covered Period AND cancelled checks during the Covered Period.
      • Note:  Most landlords don’t provide monthly statements so start looking now for your lease.  If you can’t find your copy, request a new one soon!
  • Utilities (electric, gas, water, internet, & phone)
    • detailed statements/invoices for the period February 2020 through the month of the last payment during the Covered Period AND cancelled checks during the Covered Period.

In addition to this documentation required for PPP forgiveness that must be submitted, there is documentation that must be retained by you for a long period of time.  We will provide those details at a later time.

PPP Forgiveness: Highlights

05/18/2020 8:46PM

The wait has been long but finally the SBA released something on PPP forgiveness.  In fact, what they released was the forgiveness application and related instructions…but no guidance.  I’m trying hard not to look a gift horse in the mouth, as they say, but many of the main questions remain unanswered.  For now, we’ll take what we can get and run with it!

HIGHLIGHTS

with editorialized comments

According to the Treasury Department, the form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers. 

It is true that the main part of the application is simpler than expected.  On the other hand, the calculations for reduction in wages and number of employees is everything you would expect government bureaucracy to devise. Insert eye-roll here.

These are the highlights according to the Treasury Department:
  • Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles. 

This one is great.  If you have a biweekly or weekly payroll schedule, it allows you to flex the 8-week period—for payroll costs only—to align with your regular paydays.  For instance, if your pay dates are every other Thursday and your 8 weeks began on 4/20 and your first payroll was 4/30, you can adjust the 8-week period for this purpose to begin on 4/30 and coincide with that first payroll.  This buys you a little more time with your 8 weeks and gives you potential to squeeze in an extra payroll.  Note, this does not move the 8-week period for things like rent and utilities.

  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan. 

It is hard to discern where the “news” is in this one.  It’s with the word “or.”  Again, this is a good one!  Under the letter of the law, the expenses had to be “incurred and paid.”  That basically meant you had to actually write the check and it had to be for the current period—not some past due utility bill from December or future prepayment of 6 months of rent.  But now it’s an “or.”  So, if your 8-weeks ends on 6/20 and your normal payroll is not until 6/30, you can still wait until 6/30 to pay your staff but include the payroll amounts through 6/20 in your forgiveness calculation.  Same for a utility bill.  If the period of service is for 5/20-6/20, for instance, then it is includable even if not paid.

  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness. 

Well, yeah they’re there.  And they’re step-by-step.  To be fair they made no reference to them being logical or easy, so I can’t criticize.

  • Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30. 

Fortunately, the rule is more borrower-friendly than the wording of this highlight.  But it’s not new.  It’s simply referring to the provision that if you get your staff numbers and wages at 6/30/20 back to your levels at 2/15/20, then you avoid any reduction in forgiveness.  Without this safe harbor, if your payroll decreased during the COVID quarantine period, your forgiveness amount would be limited.   

  • Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined. 

This is true and more good news.  But since they released this info last week it’s a bit anticlimactic.

So yes, there’s a lot of information still lacking in this post because there’s still of lot unknowns due to SBA silence.  Nonetheless, we are gleaning more information from the application and we’ll be releasing it in chunks over the next few days.  Specific details to follow will include strategies to maximize forgiveness and documentation that will be required.  Keep checking back.

Forgiveness Info Released

05/18/2020 10:35AM

PPP loan forgiveness information has been released. We are researching the information and will have details published for you very shortly, please stand by.

Employee Recall Letter

05/15/2020 1:44PM

Here is a good employee recall letter template to help you formalize your employee rehire process.  Remember that your employee count on 6/30/20 compared to 2/15/20 will affect your total forgiveness.  However, an employee who refuses to return will not negatively affect the forgiveness.  For documentation purposes you would want this letter or something similar on file to provide support that the missing employee refused to return to work and thereby should be excluded from the forgiveness calculation. 

Click here to download the letter template.

PPP Certification Info – Wednesday, May 13, 2020 3:00PM

We’re watching anxiously for new PPP or EIDL guidance and check it daily.  Our patience has paid off with a tiny drizzle of information today. 

PPP applications require that borrowers certify in good faith that the PPP loan is necessary to support ongoing business operations. There has been some concern about this certification process, which was only recently implemented, regarding how you would prove that the PPP loan was necessary for your practice.  The SBA has now determined that all loans with principal amounts less than $2 million will be deemed necessary for ongoing business operations, therefore meeting the good faith certification automatically. 😊  Full FAQ below.

Separate PPP Account Details – Wednesday, May 6, 2020 9:33AM

Since the forgiveness aspect of the PPP loan is of high importance, and since the use of the funds is restricted, we have suggested setting up a separate bank account to hold the PPP funds.  This will allow you to keep them separate and to keep clear records for how they were spent on the allowable items of payroll, rent, utilities and mortgage interest.  This does not mean that you have to pay the expenses directly from the PPP account.  In fact, we wouldn’t recommend it for a couple of reasons.  First, you may not have received checks for that account, or you would have to change your bill payment account to point to the new PPP account, etc—it would just be cumbersome.  Second, we don’t yet know the nuances of the forgiveness aspect since the guidance has still not been issued; and because of that you may pay something you shouldn’t from the PPP account, or not pay something you should.

A better system is to keep a simple list of eligible expenses and transfer that amount from the PPP account to your regular operating account to cover them.  To this fluid list, you can add items as they are paid or remove items as we discover they were paid in error, allowing you to transfer more or less to true up the PPP funds.  This method is especially easier to handle the payroll items.  It is difficult to change bank account info with your payroll provider.  Additionally the payroll provider would then debit the PPP account for payroll fees—which aren’t allowed, for payroll taxes—which aren’t allowed, and for net paychecks—which would be too little since PPP covers the higher gross wages figure.  Transferring in and out of the PPP account gives you flexibility to adjust or correct amounts along the way as needed.

IRS Position on PPP Deductions – Monday, May 4, 2020 2:59PM

As you know, under the provision of the PPP regulations, if you use the funds properly, all or a portion of the loan will be forgiven.  What normally happens when a debt is forgiven, the forgiven amount is considered income.  It isn’t something you earned but it is money that came in the door that you didn’t have to return.  Since the only real option for that kind of windfall is a gift or income, and since lenders don’t give gifts, by default it would be a form of income.  Here’s what would happen under normal tax laws:

You receive a loan of $50K which is forgiven.  That becomes $50K of income.  You spent the $50K all on wages.  The $50K of wages becomes a tax deduction. Simple math shows income of $50K less expenses of $50K for a net income of $0.

But PPP loans are not typical and the law states that amounts forgiven are excluded from gross income. 

On Friday, the IRS released guidance stating that if you use PPP funds on qualified expenses resulting in PPP loan forgiveness, then you cannot take those expenses as tax deductions.  Now, the IRS didn’t state the forgiven amount would be included in income as is normally the case, which seems in line with the intent of CARES.  But they said you can’t take the deductions.  So let’s walk this through.

You receive PPP funds of $50K, use them properly and they are forgiven.  You do not have to recognize income according to the CARES Act. You spent the $50K all on wages.  The $50K of wages becomes a tax deduction. IRS guidance released Friday says you can’t take the deductions that were paid by forgiven funds.  So the $50K of wages deduction is reversed. Here’s the new calculation:

Hmmm, this result looks awfully similar to the normal tax law results, as if we had just taken the forgiveness as income.  So the IRS is being challenged.  The CARES Act went to the trouble of excluding the forgiveness from income.  According to our sources at the ADA who are continually in contact with Washington lawmakers, both democrats and republicans in the House and the Senate believe the IRS got this wrong.  There is much optimism that the IRS position will be reversed. 

Here’s what we believe the PPP provisions of the CARES Act intended.  Again, the law states that any PPP amounts forgiven are excluded from gross income.  So the scenario above, instead of a net $0 effect, becomes a $50K tax deduction.    

Big difference!  A change in IRS position is far from reality but there’s a possibility this will move to a better tax position.