SBA’s Inspector General Reports SBA Failed to Follow Guidelines on PPP Loans

Think the FAQs Released by the SBA and IRS give the definitive answer on how the PPP loans are to be made, used and forgiven? Think again. According the SBA’s Inspector General report the SBA has failed to follow guidelines on PPP loans included in the law.

In a report released May 8th the SBA’s Office of Inspector General (OIG), led by Inspector General Hannibal Ware, told Congressional leaders that the agency failed to follow several congressional mandates in implementing the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The report stated that borrowers “including rural, minority and women-owned businesses may not have received the loans as intended” even though Congress had specifically required the SBA to give clear guidance to lenders about under-served and rural markets. It also found that the rules issued by the SBA requiring borrowers to use 75% of the PPP funding on payroll costs in order to qualify to receive full forgiveness of their loan were not consistent with the law, as the Cares Act didn’t mandate any specific amount be dedicated for payroll expenses. According to the National Society of Accountants many members have heard from their clients that the 75% requirement created a hardship as their businesses were not yet in operation or only in limited operation and they really needed the loans to enable them to pay rent, utilities and other ongoing expenses that were due regardless of the fact that they operations were limited by government action.

As we draft this article, the SBA has yet to comment on the report’s findings, however, the report does include a statement on the original intent of the SBA regarding the 75/25 Rule; the agency said it did so “in light of the act’s overarching focus on keeping workers paid and employed.”

Click here to read the full SBA Inspector General’s Report https://www.sba.gov/sites/default/files/2020-05/SBA_OIG_Report_20-14_508.pdf

Do you have an SBA 7(a) or 504 loan?

The CARES Act gives debt relief to business with 7(a) and 504 SBA loans. The Small Business Administration will automatically pay the principal, interest, and fees on these loans for a period of six months.  This relief also applies to new 7(a), 504, and microloans issued prior to September 27, 2020. To get this relief you do not need to take action unless according to the SBA website you have preauthorized and recurring payments (auto debits or ach payment through your bank) as the SBA says these payments will not be automatically canceled and will be applied to your loan in lieu of the debt forgiveness offered under the CARES act. To get the debt relief you will need to cancel any preauthorized payment of debts. For additional information see the SBA’s website at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-debt-relief.

 

COVID-19 Paid Leave Tax Credits for Small and Midsize Businesses

Small and midsize businesses can swiftly recover the costs of providing Coronavirus-related paid leave for employees. This is done by using one or two new refundable payroll tax credits. The Paid Sick Leave credit and the Paid Family Leave credit are designed to immediately and fully reimburse eligible employers for the cost of providing COVID-19 related leave to their employees.

Here are some key things to know about these credits.

Coverage

  • Employers receive 100% reimbursement for required paid leave
  • Health insurance costs are also included in the credit
  • Employers do not owe their share of social security tax on the paid leave and get a credit for their share of Medicare tax on the paid leave
  • Self-employed individuals receive an equivalent credit

Fast funds

  • Reimbursement will be quick and easy
  • The credit provides a dollar-for-dollar tax offset against the employer’s payroll taxes
  • The IRS will send any refunds owed as quickly as possible.

To take immediate advantage of the paid leave credits, businesses should use funds they would otherwise pay to the IRS in payroll taxes. If those amounts are not enough to cover the cost of paid leave, employers can request an expedited advance from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

For details about these credits and other relief, visit Coronavirus Tax Relief on www.IRS.gov or contact the tax professionals at RMS Accounting.

Tax-excluded Education Payments by an Employer Temporarily Include Student Loan Repayments

The CARES Act extends the traditional ability of employers to exclude payments on behalf of an employee for educational expenses of up to $5,250 per year to include the repayment of employee student loans. In both cases, payments are deductible to the employer while excluded from the gross income of the employees. Student loan payments may not exceed $5,250 per employee and made before January 1, 2021. When an employer makes a payment on a student loan on behalf of an employee that employee may not deduct any student loan interest paid in the year of the payment.

What can I Deduct Since I Have Been Forced To Work From Home?

One of the questions we are getting the most right now is regarding what those who have been forced by their business or company to work at home can deduct. The truth is if you are an employee working from home as the tax law currently stands, deductions for employee business expenses are no longer allowed.

Employees should speak to their employers about the possibility of being reimbursed for business related expenses; reimbursements would be deductible to the employer and not taxable to the receiving employee. Reimbursements can include things like internet service fees, office supplies, cell phone fees, and even business use of auto. Employers can also provide things like funds to purchase computers, printers and software and deduct them while excluding the payments under code section 139. Disaster Relief Payment also allows the payment of certain other expenses for employees due to a presidentially declared disaster, like COVID-19. These include reimbursement or payment of reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.

Those that are self-employed may deduct all ordinary and necessary expenses related to the operation of their self-employed business and of those of working from home. If you are a shareholder and employee of a S or regular corporation, the corporation can use the reimbursement rules stated above to reimburse you and any other employees it designates necessary to the ongoing operations of its business and to deduct those reimbursement.

IRS Clarifies PPP (Paycheck Protection Program) Loan Tax Consequences

The IRS recently released Notice 2020-32 which explains that while amounts forgiven under PPP loans are not taxable to the recipients of the loan, the expenses used to qualify for said loan forgiveness are also not deductible.

The CARES Act provides for PPP loan forgiveness when the use of proceeds meets certain conditions. If the recipient of a covered loan uses the proceeds to pay (1) payroll costs, (2) certain employee benefits relating to healthcare, (3) interest on mortgage obligations, (4) rent, (5) utilities, and (6) interest on any other existing debt obligations, and meets all other qualifications then loan will be forgiven. The CARES Act also excludes this loan forgiveness for income. It makes no reference however to the deductibility of the expenses paid with the loan fund forgiven.

The IRS however, in Notice 2020-32 has determined that based on the existing tax code these expenses will NOT be tax deductible, as in effect they are not being paid with the funds of the taxpayer and are in effect being paid with loan forgiveness funds provided by the government.

The notice spells out the revenue sections and other information on which the IRS has based the notice. Since the CARES Act does not make specific reference to the deduction of these expenses, and there is no way to determine congressional intent or court decision to rely on, this would seem to be the best guidance on how these expenses will be handled for now.

For example: If ABC Company receives a PPP loan for $100,000 which is forgiven based on $80,000 in payroll expenses and $10,000 in rent and $10,000 in utilities during the 8 week qualifying period, and total expenses for these items for the tax year of $1,000,000 for payroll, $100,000 for rent and $120,000 for utilities, then the tax deductions for these items would be payroll ($1,000,000 – $80,000) = $920,000, rent ($100,000- $10,000) = $90,000 and utilities ($120,000-$10,000)=$110,000.

For a closer look at IRS Notice 2020-32 click here.

Not All Businesses Will Recover

TooJay’s Deli Files for Bankruptcy

South Florida-based TooJay’s deli files for Chapter 11 bankruptcy; is this just the first of what is going to be a tsunami of bankruptcy filings to come? Will your company or employer be added to the list? No one ever wants to declare bankruptcy but it happens.

If you are a business owner, how do you stop your company from being added to the list of those filing for bankruptcy? Now is the time to start thinking about how you can reduce your expenses and preserve your cash so that you can survive the upcoming hard times. Survival almost always means being quick to adapt and keeping your eyes on two important things: your CASH and your Accounts Receivable.

Cash is the fuel required to keep your doors open, pay your employees, rent, and operating expenses. While accounts receivable is nothing more than future cashflow that is at risk.

At risk means that it’s something someone else can destroy – if you don’t control it. Make your credit policy too tight and you will lose sales and growth, but make it too loose and you end up with sales that you never collect payment on. Uncollected sales mean not only do you lose the cash you can’t collect, you also lose the cash expended to make the sale and the cash expended to purchase the goods sold.

Customers that have been good payers for years could be running into trouble through no fault of their own. The important thing is to prevent their trouble from becoming your trouble.

What can you do? Review the list of customers you extend credit too. Reevaluate their ability to meet their commitments, watch the balances of credit accounts, and be sure to cut them off early, as soon as they become delinquent. Keep in touch with those that owe you money and remember getting something now beats getting nothing later. When possible offer alternative payment terms, like payment by credit card.

Preserve your cash. Review expenses to see what recurring expenses can be eliminated. Check your credit card bills for services that automatically bill each month and are no longer used. Reduce the number of telephone lines, and eliminate services you don’t need like cable TV, window cleaners and other services that lower sales mean you can do in house.

Make a plan to protect your assets so that should things go down hill you are not left with nothing to show for many years of hard work. Talk to your accountant and your attorney about how to best protect your personal assets, and remember a business is not a ship, and in business the Capitan does not have to go down with the business. Be sure to save a spot on the lifeboat so if necessary you have the resources to start over.

IRS Employee Recall Begins

IRS recalls employee. Effective April 27th 2020 the IRS began recalling certain employees in mission-critical functions. We are hopeful this means that the IRS will again begin processing Powers of Attorney and other documents submitted as well as responding to transcript requests.

The IRS Human Capital Officer is instructing employees returning to work that, face coverings to be required in IRS facilities and workspaces.

Click here for a full copy of the memo from the IRS Human Capital Officer.

Economic Impact Payment Check Mailing Schedule


The IRS Says “The Check Is In The Mail” or Will Be

If you did not get a direct deposit and are still entitled to an Economic Impact Payment the check is in the mail or will be. The IRS says that paper checks will be mailed as follows, based on the AGI (Adjusted Gross Income) show on your 2019 return if filed. If your 2019 return has not been files then they will base the mailing on your 2018 AGI:

• People with up to $10,000 in AGI: the week ending April 24.
• Between $10,000 AGI and $20,000 AGI: the week ending May 1.
• Between $20,000 AGI and $30,000 AGI: the week ending May 8.
• Between $30,000 AGI and $40,000 AGI: the week ending May 15.
• Between $40,000 AGI and $50,000 AGI: the week ending May 22.
• Between $50,000 AGI and $60,000 AGI: the week ending May 29.
• Between $60,000 AGI and $70,000 AGI: the week ending June 5.
• Between $70,000 AGI and $80,000 AGI: the week ending June 12.
• Between $80,000 AGI and $90,000 AGI: the week ending June 19.
• Between $90,000 AGI and $100,000 AGI: the week ending June 26.
• Between $100,000 AGI and $110,000 AGI: the week ending July 3.
• Between $110,000 AGI and $120,000 AGI: the week ending July 10.
• Between $120,000 AGI and $130,000 AGI: the week ending July 17.
• Between $130,000 AGI and $140,000 AGI: the week ending July 24.
• Between $140,000 AGI and $150,000 AGI: the week ending July 31.
• Between $150,000 AGI and $160,000 AGI: the week ending Aug. 7.
• Between $160,000 AGI and $170,000 AGI: the week ending Aug. 14.
• Between $170,000 AGI and $180,000 AGI: the week ending Aug. 21.
• Between $180,000 AGI and $190,000 AGI: the week ending Aug. 28.
• Between $190,000 AGI and $198,000 AGI: the week ending Sept. 4.
• All other checks (e.g., those who didn’t have tax info on file): the week ending Sept. 11.

Remember that it may take some time after the IRS puts your check in the mail for the post office to deliver it, so patience is important.

If you don’t get the check you are entitled to there is not a lot that can be done right now as most of the IRS staff has been sent home and only a few departments are actually working, worst of all these departments will be able to answers about these checks. If the elf’s and gremlin working to get these checks out at the IRS mess-up and don’t send yours all is not lost, you will be able to file a claim for your missing payment when you file your 2020 tax return.
The information above comes from an IRS internal document published by The Washington Post.

The information above comes from an IRS internal document published by The Washington Post.

Understanding the Employee Retention Credit

The Coronavirus (COVID-19) Pandemic has caused widespread, government ordered, shutdowns of many sectors of the United States economy, which has caused extensive job loss. Over 10 million Americans filed for unemployment benefits in March and far more claims are expected in the month of April, according to the U.S. Department of Labor.

In an effort to help curb the massive layoffs that we have been seeing, Congress has created a new federal income tax credit for employers that keep their workers on the payroll, and therefore out of the unemployment lines. The tax credit amount equals 50% of eligible employee wages paid by an eligible employer in a 2020 calendar quarter. It is subject to an overall wage cap of $10,000 per eligible employee.

Wondering if your business is eligible? Here’s a breakdown of eligibility criteria:

Eligible Employers:

Forced Closure This credit is available to employers, including non-profits, whose operations have been fully or partially suspended during a 2020 calendar quarter as a result of an order from an appropriate governmental authority that limits commerce, travel, or group meetings due to COVID-19.

Decline in Receipts The credit can also be claimed by employers that have experienced a greater-than-50% decline in gross receipts for a 2020 calendar quarter. The credit is disallowed for quarters following the first calendar 2020 quarter during which gross receipts exceed 80% of gross receipts for the corresponding 2019 calendar quarter. In short, you can be eligible in one quarter of the year and ineligible in another.

Number of Employees An eligible employer must have had an average of 100 or fewer full-time employees in 2019. In this instance, all employee wages are eligible for the credit (subject to the $10k wage cap) regardless of whether employees are furloughed due to COVID-19.

The 50% employee retention credit is available to cover eligible wages paid between March 13, 2020 and December 31, 2020. The $10k cap includes allocable health plan expenses as well.

Rules and Restrictions

The 50% employee retention credit is NOT allowed for:

  • Emergency sick leave wages or emergency family leave wages that small employers (those with fewer than 500 employees) are required to pay under the Families First Coronavirus Response Act (FFCRA). Those mandatory leave payments are covered by federal payroll tax credits granted by the FFCRA.
  • Wages taken into account for purposes of claiming the pre-existing Work Opportunity Credit under Internal Revenue Code (IRC) Section 21.
  • Wages taken into account for purposes of claiming the pre-existing employer credit for paid family and medical leave under IRC Sec. 45S.

The Employee Retention Credit is NOT available for employers that receive a potentially forgivable Small Business Administration (SBA) guaranteed Small Business Interruption Loan, issued pursuant to the

The Small Business Administration (SBA) issued new guidance on PPP Loans & Public Companies

The Small Business Administration (SBA) issued new guidance today, April 23, 2020, intended to prevent larger publicly traded companies from accessing the next round of Paycheck Protection Program (PPP) funding intended for small business relief. The new SBA guidelines require that companies applying for relief certify that the loans are necessary and that they cannot tap other sources of funding.

“It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith,” the SBA said. A key detail of the SBA’s new position is that larger public companies will be able to avoid future scrutiny by returning the relief loans within the next two weeks should they have already received funds.

To see the SBA’s
PAYCHECK PROTECTION PROGRAM LOANS
Frequently Asked Questions (FAQs)
CLICK HERE