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COVID-19 Updates

 

 

July 15 Extensions and Quarterly Payment Deadline Reminder
New PPP Law - PPP Flexibility Act of 2020
Stimulus Debit Cards
PPP Updated Loan Forgiveness Guidance
Loan Forgiveness Guidance
Business Strategies and Tax Planning for Challenging Times
Economic Impact Payment Paper Check Mailing Dates
PPP Webinar: Loan Forgiveness Best Practices PART 2
PPP Webinar: Loan Forgiveness Best Practices
April 22 Update: More PPP Funds and Guidance for Self-Employed and Independent Contractors
It's Your Money: A Primer on CARES Act
April 15th Update: Tax Season and CARES Act Summary
Conversation Series: All Things Tax
PPP Loan Forgiveness Best Practices

 

The communications below are intended to provide general information on legislative COVID-19 relief measures as of the date of the communications and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in the communications. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

 

 

Tafoya Barrett and Associates
.
Updated On: 06/08/2020


 







July 15 Extensions and Quarterly Payment Deadline Reminder

Dear Clients and Friends,

 

While we have been updating you a lot lately regarding the PPP Loan Program that does not mean that we have forgotten about your tax returns.  Our staff has remained busy working on your returns and the partners are finally finding space to review those returns and contact you to setup delivery meetings (mostly virtually via zoom) as we finish them.  We anticipate getting many returns done in the next month or so, but as usual will need to extend many as well as we typically do in April.

 

We wanted to reach out to you now and remind you that as the law exists today, the 2019 deadline is still July 15.  There have been some proposals to once again postpone this deadline, but nothing has been made formal yet.  Accordingly, this means that we will either need to file your return or an extension by July 15.  If you still owe money for 2019, these amounts will need to be paid by July 15.  In addition, any first and second 2020 quarterly estimates that would have been due in April and June will also need to be paid by July 15.  This means that some of you will need to have enough cash set aside to cover all three payments!

 

We will spend the next five weeks finishing those returns that we can and preparing extension estimate computations for the ones that we cannot.  As usual, we will work on returns and extensions, in the order that the information came into us (first in first out basis).  If you have already given us your information, we will contact you as soon as we can to let you know how much you owe if anything.  If you have not given us your tax information yet, please send it to us as soon as you can, so that we are able to prepare an extension estimate for you and let you know how much you should pay!

 

We will need to have your 2019 information by no later than June 30th in order to base your extension estimate on your actual 2019 income.  If we do not receive you 2019 information by June 30th we will base your extension estimate on your 2018 tax returns.

 

If your income is going to change significantly in 2020 compared to 2019, please also provide us with an estimate of the significant changes you expect so we can factor those changes into the calculation of your 2020 estimated tax liability for the first and second quarters of 2020.

 

Please let us know if you have any questions or concerns and thank you for your patience during this strange and uncertain time!  

 

Sincerely,

Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Hannah, Cindy and Gaby


 

Tafoya Barrett and Associates
.
Updated On: 06/03/2020

 


 





 


NEW PPP Law - PPP Flexibility Act of 2020!

Dear Clients and Friends,

 

As you may have heard or read, we are on the verge of having much needed relief with regard to the PPP loan program.  Late last night, the Senate unanimously passed the House version of the "Paycheck Protection Flexibility Act".  The President is expected to sign it soon!  This new law eases many of the restrictions that small businesses have been struggling with and should make forgiveness easier in most cases.

 

Before we summarize the highlights of the new bill, we wanted to point out that there is still around $120 billion in funds left in the PPP program.  Accordingly, if you have not received a PPP loan yet, now might be the time to apply!  With this new guidance, there could be renewed interest in these loans.

 

8 Week Period now 24 Weeks – The "covered period" or the time that you have to spend your PPP loans funds has been expanded from 8 weeks to 24 weeks or December 31, 2020, whichever is earlier.  This provision should help businesses that are still not able to bring their full workforce back but hopefully will be able to by December 31, 2020.

 

FTE Safe Harbors – You now have until December 31, 2020 instead of June 30, 2020 to restore your FTE and salary/wage levels.

 

In addition, the new bill provides new safe harbors for employers who are not able to rehire individuals who were employees on 02/15/2020 or similarly qualified employees by 12/31/2020 and/or who are not able to return to the same level of business activity because of COVID -19 operating restrictions!

 

75% Payroll Rule Now 60% - Previous rules stipulated that at least 75% of the forgiven amount had to be spent on payroll.  If you didn't meet that mark, then some of your forgiveness would be reduced.  The bill changes that rule in 3 ways.  First of all, the 75% has been reduced to 60% and in addition it now stipulates that 60% of the loan (not the forgiven amount) must be spent on payroll.  Accordingly, 40% of the loan can now truly be spent on other qualified expenses – rent, utilities and mortgage interest.  

 

One potentially limiting factor under the new law though is that if at least 60% of the loan is not spent on payroll, then none of the loan will be forgiven!  There are already requests to tweak this so if you don't spend at least 60%, your forgiveness is only reduced by that shortfall rather than entirely!

 

Payroll Tax Deferment – The new bill also allows businesses that took a PPP loan to delay payment of their payroll taxes.  The CARES Act previously allowed for the deferral of the employer portion of social security tax incurred on wages or 50% of SE tax for self-employed from March 27, 2020 through December 31, 2020.  Any amounts deferred during this period would then be due 50% at the end of 2021 and 50% at the end of 2022.  The previous laws placed restrictions on employers who took a PPP loan to fully use this same deferral.  The new bill removes that restriction!

 

Loan Period – The new bill increases the loan period from 2 years to 5 years, if you are not able to get the entire loan forgiven and you have to pay some back.

 

Please remember that this bill is not law until the President signs it.  As usual, we believe there could be technical corrections once it becomes law, but these always take time.  Finally we will need to see how the SBA and Treasury interpret this new bill and change the forgiveness application and forgiveness rules.  We will keep you posted.

 

In the meantime, please do not hesitate to call on us as we stand ready to assist in whatever way you need through this process!  

 

Sincerely,
Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Hannah, Cindy and Gaby

 

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.





 


 

Tafoya Barrett and Associates
.
Updated On: 05/29/2020


 








 

Stimulus Debit Cards

 

Dear Clients and Friends:

 

It has come to our attention that some taxpayers are beginning to receive their CARES ACT – Economic Impact Payments, (stimulus checks), via Debit Cards.

Please note, this is NOT a scam.

See the link below, specifically Q45.

If you have any questions or concerns, please do not hesitate to call or email us.

https://www.irs.gov/coronavirus/economic-impact-payment-information-center#receiving


Sincerely, 

Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Hannah, Cindy and Gaby

 

 

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.







 

Tafoya Barrett and Associates
.
Updated On: 05/28/2020











PPP Updated Loan Forgiveness Guidance

 

Dear Clients and Friends,

Thankfully, the SBA came out with additional guidance late Friday to supplement the application for forgiveness that it released last weekend.  The new guidance comes in the form of 2 new Interim Final Rules “IFRs”; one that provides specifics on “Loan Forgiveness” (26 pages) and the other that provides “Loan Review Procedures and Related Borrower and Lender Responsibilities” (19 Pages).   Much of the guidance simply reiterates information that we already knew.  Accordingly we will only focus on trying to summarize (in plain English´üŐ) only the new guidance and other aspects we feel it appropriate to remind you of!  We do suggest that if you are completing the application yourself, that you read the entire notice!

First, we will start with what the guidance does not do! Unfortunately, it did not change the eight-week period time frame nor did it change the rule requiring borrowers to spend at least 75% of the funds on payroll costs to qualify for loan forgiveness.  Realizing that eight weeks is not long enough for many businesses that can’t even open now, many groups are pushing to extend that period.  As of today there is a bill in the Senate that could double the period to 16 weeks and another in the House that would expand the period to 24 weeks.  There are also bills in both the House and the Senate to eliminate the 75% rule as well.  We will keep you posted if and when any of these become law!

SBA Interim Final Rule on Loan Forgiveness

General process to obtain loan forgiveness – To receive forgiveness, you will submit Form 3508 Loan Forgiveness Application with the bank you received your loan from.  There is no formal date within when to do this but we suggest doing it as soon as possible after your eight week period ends or when you have spent your PPP money, whichever comes sooner.  

Your bank will review the application and make a decision on loan forgiveness.  Your bank has 60 days from the receipt of your forgiveness application to issue a decision to the SBA at which time it will request reimbursement from the SBA for the loan.  The SBA (subject to any SBA review of the loan), has 90 days to reimburse your bank for the loan plus any accrued interest. During this 90 day period, the SBA has the ability to determine if you were ineligible for the loan.  However, this is only the SBA’s first opportunity to deny forgiveness.  As noted in the application and the second IFR, the SBA can audit any loan for up to six years after the loan is forgiven.  More on this later.

Payroll Costs Paid or Incurred and Covered Period vs. Alternative Payroll Covered Period – There is no real change here, but these terms are all very important and worthy of stating again.  The “Covered Period” starts on the first day that you received your PPP funds (Day 1) and ends 8 weeks or rather to be exact 56 days later (subject to change).  As noted before, if you have a bi-weekly or more frequent payroll schedule, you can elect to use a different 56 day period that starts on the first day of your first pay period following the date you received your funds.  To be eligible for forgiveness, payroll costs must be paid during the covered or alternative period. In addition, payroll costs incurred during the last pay period of the covered or alternative period but paid after are also eligible for forgiveness if paid on or before the next regular payroll date.  The guidance (link below) has a great example on page 10!

Wages for furloughed employee and bonuses – This new guidance makes it clear that wages paid to furloughed employees (even if not currently working) and bonuses are eligible for forgiveness if paid during the applicable period and they do not exceed an annual salary of $100,000 as prorated.  Accordingly, you can continue to pay your employees even if they are not able to work whether due to lack of economic demand or public health considerations.

Payroll Costs maximums for owner-employees, self-employed and partners -  The guidance reiterates that owner-employees and self-employed individuals’ forgivable payroll cannot exceed the lesser of 08/52 of their 2019 compensation or $15,385, in total across all businesses!  Specifically, owner-employees (we believe they mean S Corp owners) are capped by the amount of their 2019 employee cash compensation plus employer retirement and health care contributions.  Schedule C filers are capped by the amount their 2019 net profit (Schedule C Line 31). General Partners are capped by their 2019 self-employment income (Schedule K-1 Line 14a) reduced by Section 179 depreciation, unreimbursed partnership expenses and depletion, multiplied by .9235.  It also reminds us that retirement contributions and health insurance for Schedule C filers and general partners are not eligible for forgiveness!

Nonpayroll Costs – Not necessarily new, but nonpayroll costs (rent, utilities, etc.) incurred during the covered period but not paid until the next regular billing date are also eligible for forgiveness.  For example if the covered period Starts on June 1 ends on July 26 and you pay the May bill in June, June in July and would normally pay July’s bill on August 10, a prorated portion of the July utility bill would be eligible for forgiveness as well as the entire May and June bills!  Again please note that at least for now these costs are limited to 25% of the amount forgiven!

What happens if I try to rehire someone and they refuse?  Will my forgiveness be reduced? The short answer is no, you will not be penalized for not replacing someone in this situation.  In other words, you would exclude this person in your Full-time Equivalent FTE headcount. However you must meet certain steps including: make a good faith written offer for same salary and number of hours as before; offer must be rejected; maintain records documenting the offer and rejection and you must inform the state unemployment office within 30 days of the offer!

Full-Time Equivalent “FTE” – Again any employee that averages 40 or more hours per week is treated as 1.0 FTE. Employees who work less than 40 hours either need to be calculated by dividing their average by 40 (30 hours would equal .75 FTE) or by treating each employee under 40 hours per week as a .50 FTE.  Whichever method you choose must be used consistently.

Reduction in FTE Employees – This guidance mirrors the guidance offered in the application but perhaps is a little clearer here.  See page 16 if you want the full blown description.  In simple terms, you get to select a reference period, either 02/15/19 – 06/30/2019 or 01/01/2020-02/29/2020 or if a seasonal employer you can also choose a consecutive 12 week period between 05/01/2019 - 09/15/2019.  You then compare the FTEs of the reference period you select to either 8 week/56 day covered period or alternative payroll period if using that instead.  If your FTEs are less during the covered or alternative period, then your payroll costs eligible for forgiveness are reduced proportionally. For example if your FTEs declined from 10 to 8, then only 80 percent of your payroll costs are eligible for forgiveness, unless you are able to restore those FTEs by June 30, 2020 “FTE Reduction Safe Harbor.”  Once again, reductions in FTEs due to employees that are fired with cause, voluntary resignation or a voluntary reduction in hours will not count against you.  You simply count these people at the same FTE level as they were before.  In other words, you include in them in your FTE count before and after!

Reduction in Employee Salary or Wages – In general, if you are paying your employees 25% less than you were before, then some of you loan forgiveness may be reduced.  This calculation is on a per employee basis (unless over $100,000 annually) and is determined by comparing the employee’ salary or wage during the covered period to their salary or wage during the reference period in this case, 01/01/2020 – 03/31/2020.  You must reduce your forgiveness amount by the amount of salary or wage reduction that is in excess of 25 of their salary or wage during the reference period. For example, assume that you paid someone $1,000 per week during the reference period and $750 per week during the covered period.  There is a reduction in salary of $300 per week, but the first $250 (25% of $1,000) is exempt from reduction.  Accordingly, you would list $400 ($50 per week X 8 weeks) as a salary/hourly reduction for this employee.

Thankfully, there are a couple of exceptions to the above rule.  First of all, the salary/wage reduction applies only to the portion of the decline that is not attributable to the FTE Reduction.  In other words, you are not penalized twice because of a FTE reduction.  Second, neither the reduction in salary/wage nor FTE reduction apply, if you can restore those reductions by June 30, 2020, “Reduction Safe Harbor”.

Documentation Requirements – A reminder that the application sets forth what information you will need to submit to your lender, documentation that you are required to maintain and submit upon request and documentation that you may submit voluntarily!

SBA Interim Final Rule on Loan Review Procedures and Related Borrower and Lender Responsibilities

SBA Review of PPP loans – Clarifies that the SBA may review any PPP loan as the Administrator deems appropriate.  The SBA may potentially review a number of things, including; your eligibility for a PPP loan, loan amounts, use of proceeds and finally ultimate loan forgiveness.  It remains to be seen what this truly means as the IFR uses the word “may” throughout.  We know from prior guidance that the SBA will definitely review all loans over $2,000,000.  So we believe this guidance is simply a reminder that the SBA has the right to review all or none of the things above when it “deems appropriate”.

When will SBA undertake a loan review – Clarifies like above that for a loan of any size, the “SBA may undertake a review at any time in SBA’s discretion”.  It also reminds us that each of you will need to retain your PPP documentation on file for six years after the date your loan is forgiven and to permit SBA access to such files upon request!

SBA Review Questions and/or Appeal – Stipulates that you will have the ability to respond to any questions/issues raised by the SBA as well as appeal any decision they might make regarding ineligibility or loan forgiveness.

Loan Forgiveness Process for Lenders – Sets forth the steps that your bank must take to confirm your certifications regarding eligibility, calculation of qualifying costs, loan forgiveness etc.  Also discusses the timeline for forgiveness once you submit, notifications from bank to you if SBA reviews, and potential claw back of fees your back was paid, if SBA determines you were ineligible.  We suggest reading through this so that you understand even more fully what your bank has to do and might request of you!

We know this is a lot of information, but hope that our detailed summary helps you to understand the steps necessary for maximizing forgiveness of your PPP loan.  Again we do suggest that you read through the IFRs (links below) on your own, especially if you plan on completing the application on your own.  Again, we stand ready to assist in whatever way you need through this process!  Please do not hesitate to call on us.

https://home.treasury.gov/system/files/136/PPP-IFR-Loan-Forgiveness.pdf 
https://home.treasury.gov/system/files/136/PPP-IFR-SBA-Loan-Review-Procedures-and-Related-Borrower-and-Lender-Responsibilities.pdf 


Sincerely,

Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Hannah, Cindy and Gaby

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.





 
Tafoya Barrett and Associates
.
Updated On: 05/20/2020








 

Loan Forgiveness Guidance

 

Dear Clients and Friends,

 

We finally have some much needed guidance on how PPP loans will be forgiven and the steps that you need to take to try an ensure that you are able to maximize the amount of forgiveness you qualify for.  As usual, while some of our questions were answered the new guidance raises additional questions as well.  We expect even more guidance to come and hopefully soon!

 

Over the weekend the SBA released Form 3508 Paycheck Protection Program Loan Forgiveness Application.  This will be the application (or some version of it) that you will need to submit to your bank when you are ready to ask for the loan to be forgiven.  The form is 11 pages and includes a loan forgiveness calculation form, a Schedule A, a Schedule A worksheet, definitions and instructions for all of above! There is no easy way to summarize this form as it is very mechanical in nature and somewhat hard to follow.  You will definitely want to get the assistance of your accountant (if not us), your banker and probably even your payroll company to work through this form.  We will do our best to summarize the most important/new elements below.  We have also included a great Forbes article that explains the entire application pretty well and has some great examples which will help explain it all better!

 

The application is full of definitions that you will need to understand as you make your way through it.  Most of them are self-explanatory, but a few require a little closer look as they are vague or provide new clarity!

 

Covered Period – This period is very important and begins on the first day that you received your PPP loan funds and ends 8 weeks or 56 days later to be exact!  It is important to note that the day you actually received the funds is counted as Day 1!

 

Alternative Payroll Covered Period – This was a bit unexpected but a welcome surprise!  Borrowers that have a bi-weekly or more frequent payroll schedule can elect to use a different 56 day period that starts on the first day of their first pay period following the date they received money.  The application itself provides a good explanation and example of this alternative period.   This may be helpful to some borrowers as it may allow them to align their 56 day period with their normal payroll cycle.  Although we are not certain how helpful this is since the guidance has come 4 weeks after many people received and started using their funds!  Please note that if you choose the Alternative period that you can only use it for payroll.  All other expenses, like rent, utilities etc. will need to be tracked during the “Covered Period”.

 

Paid or Incurred? – Earlier guidance used the terms “paid and incurred” when discussing expenses that were qualified for use of PPP funds and eligible for forgiveness.  This led many to wonder whether they  should be using accrual or cash basis to determine whether an expense had to be paid, incurred or paid and incurred.  The bottom of page 1 and the definitions on page 2 finally provide clarity and seem to provide that one can use either!

 

The explanation at the bottom of Page 1 for Line 1 states “Enter total “eligible payroll costs” incurred or paid during the Covered or Alternative Period”.!  Page 2 then defines “eligible payroll costs” and gives us a fairly broad and welcome definition.  The first sentence explains the eligible payroll costs are payroll costs paid and payroll costs incurred during the appropriate 56 day Covered or Alternative period.  It then goes on to say that payroll costs incurred but not paid during the appropriate Covered or Alternative period are still eligible for forgiveness if paid on or before the next regular payroll date.  In other words, you can include payroll that is paid during the appropriate Covered or Alternative period even if the pay period fell (as part of your normal payroll process) before your loan proceeds were received.  In addition on the back end, you can also include payroll that is earned during the appropriate period but not paid until the next regular payroll date even if that date is past the 56 day period!  

 

Eligible nonpayroll costs – There is not much new in here, however note that it now appears that “covered mortgage obligations” (interest only) and “covered rent obligations” now include mortgage and leases of personal property as well as real property.  Accordingly, things like copier and other equipment loans and leases may qualify for forgiveness now too if the loan or lease was in existence before February 15, 2020!  Utility payments are also clearly defined as payments for electricity, gas, water, transportation, telephone and internet access for services that were in existence before February 15, 2020.  Finally, there is still the caveat that “eligible nonpayroll costs” cannot exceed 25% of the total forgiveness amount.  Note that it is no more than 25% of the forgiveness amount, not the total loan amount!

 

Full-Time Equivalency “FTE” – This term is used throughout the application and will need to be calculated for different time periods depending on each borrowers situation and choice of a period when given an option.  For each of the different time periods FTE is calculated by taking the average number of hours paid per week, divided by 40 and rounded to the nearest tenth.  The max for each employee is 1.0 FTE.  For example an employee that averages at least 40 or more hours a week will count as 1.0 FTE.  An employee that averages 30 hours a week will count as .75 FTE.  The application does allow for a simplified method that assigns 1.0 for anyone that works 40 hours or more and 0.5 for anyone that averages fewer than 40 hours per week.  The same method should be used consistently throughout the application.

 

PPP Schedule A Worksheet – Please note that there are different tables for employees that receive less than $100,000 in compensation annually or at an annualized rate of less than $100,000 (Table 1) and those that receive more than $100,000 (Table 2).  This is because for those employees in Table 1 you will need to determine if their salaries were reduced during the appropriate Covered or Alternative period.  Also note that you will not include amounts paid to Owner-employees, self-employed individuals, or general partners in Table 1 or 2!  Those amounts are pulled into Schedule A on Line 9 under Compensation to Owners.  This provides some question of what to do with S Corporation Owners that are also employees.  In typical IRS guidance they are considered employees where as general partners are not.  We believe Line 9 was meant to carve out self-employed Sole Proprietors and General Partners as they are treated differently and are not allowed to have health insurance and retirement contributions included in their “payroll costs”.  S Corporation owners are allowed however and so the question remains whether they should be included in Table 1 or 2 or on Line 9 with compensation, health and retirement contributions totaled in one amount on line 9!

 

FTE Reduction Exceptions – This is important guidance as indicates that an employer will not be penalized if (1) they made a good-faith written offer to rehire someone and that offer was rejected; (2) an employee was fired for cause; (3) voluntarily resigned; or (4) voluntarily requested a reduction in hours.  In these situations those employees are not counted in the FTE calculations unless that position was filled by a new employee! More simply put and important FTE reductions in these cases do not reduce forgiveness!

 

FTE Reduction Safe Harbor – This is also important guidance especially for those businesses that had to shut their doors and lay off employees.  The provision exempts borrowers from a reduction in loan forgiveness of both of the following are met:  1) the borrower reduced its FTE levels in the period from February 15, 2020 through April 26, 2020 and the borrower then restored its FTE levels by no later than June 30, 2020 to its FTE levels for the pay period that included February 15. 2020.

 

At this point we have summarized the new/important/vague  elements included in the application.  The rest of the application deals with exactly how to calculate Payroll Costs, FTE’s, Salary and Hourly Wage Reductions and the ultimate amount that is forgiven.  It also provides a comprehensive list of documents that will need to be submitted with the application. The calculations are fairly mechanical in nature, mostly understandable or explained well but frankly are a bit hard to explain well in this format.  The actual application is here:

https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf

 

We also believe that this article provides a great analysis of the application and some good examples as well:

https://www.forbes.com/sites/anthonynitti/2020/05/16/sba-releases-paycheck-protection-program-loan-forgiveness-application-a-deep-dive/#2cf5d8441b2f 

 

We highly suggest that you read through the application several times as well as the article.  You may also need to get help from your CPA, banker and payroll company and should not hesitate to ask as preparing this application correctly is necessary to ensure forgiveness.  We hope that you found our summary helpful and stand ready to assist in whatever way you need through this process!  Please do not hesitate to call on us and feel free to share this announcement with friends and family!

 

Sincerely,

Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Hannah, Cindy and Gaby

 

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.


 

Tafoya Barrett and Associates
.
Updated On: 05/18/2020




 

Business Strategies and Tax Planning for Challenging Times - ASAP Accounting & Payroll, Inc.










 
Tafoya Barrett and Associates
.
Updated On: 05/11/2020








 

Please click the link below to view the "Economic impact payment paper check mailing dates, Federal Tax Update (05/11/2020)" PDF document:

Economic Impact Payment Paper Check Mailing Dates









 
Tafoya Barrett and Associates
.
Updated On: 05/11/2020









 

Michelle Kooi presents with Mark Betts and Diana Murray of ASAP Accounting & Payroll on the latest updates for PPP Loan foregiveness guidance.
 

Paycheck Protection Program (PPP) Loan Forgiveness - Part 2 - ASAP Accounting & Payroll, Inc.

 
Tafoya Barrett and Associates
.
Updated On: 04/24/2020









 

Michelle Kooi presents with Mark Betts, VP of ASAP Accounting and Payroll, on the best practices for Loan Foregiveness.

PPP WEBINAR - Loan Forgiveness Best Practices - ASAP Help Center



 
Tafoya Barrett and Associates
.
Updated On: 04/22/2020






 

Dear Client and Friends:

 


We hope that this email finds you healthy and safe! As many of you are aware the PPP loan program ran out of money last week. However the Senate has approved more funds ($310 Billion for PPP and $50 billion for EIDL) and the House is expected to follow suit in the next day or two. We also understand that the Treasury is trying to eliminate some the problems that happened with the first round of lending. Accordingly, we are not sure when the new funds will be available, but wanted to make you are aware so that you are ready to submit if you missed the first round.

First and foremost reach out to your banker to ensure that they will be taking applications and find out for sure what you need to submit and how to submit the application and other necessary documents. Have everything that they need ready and in a digital format so that you can upload directly to your bank when they are ready.

Last week, we finally received some guidance in the form of a new Interim Final Rule, “IFR” from the SBA on how self-employed and independent contractors can apply for a PPP loan. As we were about to send out a summary about this guidance, the program ran out of money. Accordingly, we held off hoping that more money would be allocated and hoping for even more clarification.

You can read the entire IFR here if you like! https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf Otherwise, here is our summary of the most salient points!

Eligibility - The IFR clarifies that you are eligible for a PPP loan; if you were in business on February 15, 2020, are an individual with self-employment income, reside in the US and you filed or will file a Form 1040 Schedule C for 2019. It also clarifies that if you are a partner in a partnership, that you should not submit a separate PPP application for yourself. Rather you should include your self-employment income, (including guaranteed payments), as a payroll cost and include that in a loan application filed on behalf of the partnership. Fortunately this tracks with our previous interpretation.

Maximum Loan Amount – This depends on whether you have other employees or not. If you do not have other employees, then the IFR suggests that you use the net profit amount from line 31 of your 2019 Schedule C. If the amount is over $100,000, then reduce it to $100,000. Take the lesser of line 31 or $100,000 divide by 12 to get average monthly net profit and then multiply by 2.50. This is your loan amount. For someone with net profit in excess of $100,000 on Line 31, your maximum loan is $20,833. If the amount is zero or less, the guidance says that you do not qualify for a PPP loan. The guidance also states that you should complete your 2019 Schedule C even if you have not filed your 2019 tax return yet. This obviously may create a problem if your 2019 tax return is not completed yet, especially if you haven’t even submitted your tax information to your CPA.. It is also troubling that they are focusing on the net profit reported on Schedule C because as you know, this has nothing to do with what a self-employed person actually pays themselves. We have pushed for further guidance in this area to use draws or something similar, to no avail.

If you do have employees, then you add the number from the above computation to your “payroll costs” for those employees. We have defined “payrolls costs” in previous announcements and summarize it again below:

  1. 1. Gross salary, wages, commissions, tips, vacation pay and compensation, (limited to $100,000) plus
  2. 2. Health insurance premiums that the employer pays, plus
  3. 3. Retirement contributions made by the employer, plus
  4. 4. State Unemployment tax
 

EIDL Loan Refinance to PPP – IF you previously received an EIDL loan between 01/31/2020 and 04/3/2020 that you seek to refinance, add it to the above amounts and subtract the amount of any EIDL advance grant that you received (EIDL grant does not have to be repaid).

How to use PPP loans – Self-employed people should use the funds to cover the following expenses during the 8 week period after the loan origination date:

  1. 1. “Owner Compensation Replacement” (more info below)
  2. 2. Employee Payroll Costs
  3. 3. Mortgage interest payments on business loans, business rent and utility payments. The IFR specifies that these expenses must be expenses that you would normally deduct on Schedule C.
 

Owner Compensation Replacement again is defined as the 2019 net profit reported on line 31 of Schedule C. At least 75% of the loan must be used on “owner compensation replacement” and employee payroll costs if applicable. This is where the IFR gets a little weird! First it says that 75% must be used for payroll costs (including the owner comp replacement), but then it says that owners compensation is limited to 8 weeks so that only 8/52 of net profit is subject to potential forgiveness. For someone that has no employees and $100,000 of net profit, then the loan about would be $20,833 as calculated above. 75% of that would be $15,624.75, whereas 8/52 of $100,000 would be $15,385! Confused yet? So which do you use? Further Guidance Pending!

Forgiveness – We had previously sent out our best practices recommendations on what we believe you should do to ensure forgiveness. You can find that on our COVID-19 webpage under “PPP Loan Forgiveness” https://www.tafoyabarrett.com/covid-19-updates We believe that more guidance will come with regard to forgiveness as there are already several issues that are not clear! Stay Tuned!

Again, we know that this is a lot to digest and that some things are still not very clear and thus we expect more guidance. However, we wanted to get you this information as soon as possible to ensure that you get the funding you need to survive and have the proper procedures in place as you receive and start spending this money. Please let us know what we can do to help you!

Finally if you feel that others might benefit from this information feel free to share this email. Please just make sure that you share the email in its entirety so that the details are not misconstrued and that you remind them to be in touch with their CPA and banker.

 

Sincerely,

Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Cindy and Gaby

 
Tafoya Barrett and Associates
Updated On: 04/17/2020

 

 

It's Your Money: A Primer on CARES Act

Brad Tafoya talks about the benefits available through the CARES Act. 

 

 

 

 

Tafoya Barrett and Associates
Updated On: 04/15/2020

 

 

 

 

 

 

 

April 15, 2020

Dear Client and Friends:


We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about the status of your 2019 income tax return preparation and filing as well as some of the recent tax law changes meant to help everyone coping with the Coronavirus fallout.

It feels very strange to be writing this letter to you on April 15th but we wanted to give you an update on how our Firm is navigating the recent federal legislation and IRS filing and payment due date postponements that have been enacted and implemented due to the Corona Virus outbreak in the United States.  You are likely already aware of the fact most of the filing and payment due dates that fall between April 15th and July 15th have now been postponed until July 15th.  Which is why you may not have heard from us directly prior to April 15th.

On March 27th the Coronavirus Aid, Relief, and Economic Security, (CARES) Act was signed into law.  As a result of the passage of this sweeping legislation we had to pivot, or shift some, but not all, of our Firm's resources away from our traditional workload during this time of year to quickly educating ourselves on the new legislation, and more importantly helping many of our small business clients navigate the relief provisions and gain access to some of the funding that was available.  Some of our small business clients have already received funding from the SBA relief loan program, known as the Paycheck Protection Plan, or PPP loan program, which will provide them with funding to help keep their employees employed during these challenging times.

We have also heard, just today, that some of our clients have begun receiving their Economic Impact Payments, (stimulus checks), today!  We are glad to hear that some economic relief is reaching the bank accounts of those that are need of some assistance.

Even though we had to shift gears in the thick of the traditional tax filing season, we have been able to continue to push through the preparation process of 2019 income tax returns, just at a slower rate.  Consequently, we feel we are running about 2 to 3 weeks behind schedule.  We intend to continue to work hard on behalf of our clients in the coming weeks to not only help those who need assistance navigating the relief provisions of the CARES Act, but also continuing to push through the traditional workload of preparing and completing 2019 income tax returns.  Therefore, if you provided us with your 2019 tax return information by our usual cutoff date of February 28th, and expected your tax returns to be completed by April 15th, we hope to have your returns completed by mid-May at the latest and hopefully even sooner.

If you were expecting to file an extension by April 15th, please note that the due date for filing an extension has been postponed until July 15th and no further action is needed.  We plan to continue to work through our workload on a first-in, first-out basis and will complete some returns that would have needed to be extended by April 15th, prior to the July 15th postponement date.  We also know that we will not be able to complete all of our clients' 2019 income tax returns by July 15th, and will be connecting with those clients we expect needing more time, in late June and early July to be sure any payments that are still due for 2019 income taxes are paid in full by July 15th.  Also, please note that both the first and second quarter 2020 estimated tax payment due dates have also been postponed until July 15th.

We now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress's gigantic economic stimulus package that the President signed into law on March 27, 2020.

Recovery rebates for individuals.  To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joint returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17.

Rebates are gradually phased out, at a rate of 5% of the individual's adjusted gross income over $75,000 (singles or marrieds filing separately), $112,500 (head of household), and $150,000 (joint). There is no income floor or 'phase-in'-all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.

The rebates will be paid out in the form of checks or direct deposits. Most individuals won't have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer's tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.  Also, individual who were not required to file federal income tax returns in 2018 or 2019 also qualify for the rebates.  Those non-filers should go to the following IRS website and enter their pertinent information in order to get into the IRS's system in order to obtain their rebate.  You can also use the same website to enter your bank account information, if you have filed your 2018 and 2019 income tax returns but have not previously given your bank account in-formation to the IRS.

www.irs.gov/coronavirus/economic-impact-payments

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA within three years and if recontributed within that time frame, such distributions will not be treated as taxable income. Income and associated income tax arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 15, 2020, due to the account owner's having turned age 70 1/2 in 2019.

Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the rules governing charitable deductions:

(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.

(2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn't apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual's qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.

(3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn't apply to qualifying contributions made in 2020. Instead, a corporation's qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required.  

(4) For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

Exclusion for employer payments of student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.  

Break for remote care services provided by high deductible health plans.  For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.

Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren't paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.

Business only provisions  

Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer's 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.  

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren't providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven't been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.  

Wages don't include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S ) or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51 ). An employer can elect to not have the credit apply on a quarter-by-quarter basis. 

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans, (SBA-PPP loans). The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn't available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.

Deferral of noncorporate taxpayer loss limits.  The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carryforwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn't automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don't include any deductions, gross income or gain attributable to performing services as an employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements. The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) a wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) if required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.

Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn't taxable. Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren't taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.

Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19.

Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.  

IRS information site.  Ongoing information on the IRS and tax legislation response to COVID- 19 can be found at  https://www.irs.gov/coronavirus .

If you have any questions regarding this information or just feel the need to touch base with us please do not hesitate to email or call us.

Warm regards for your safety, health, and well-being,

Pat, Michelle, Brad, Brad W. Chris, Kelsey, Matt, Theresa, Marian, Cindy and Gaby

 

 

 

Tafoya Barrett and Associates

 

 

Updated On: 04/15/2020

 

Conversation Series 
Pat Barrett speaks in the Conversation Series - All Things Tax

 

 

 

 

Tafoya Barrett and Associates

 

 

Updated On: 04/09/2020
 
 
 
 

 

 

PPP Loan Forgiveness

 

 

 
 
Dear Clients and Friends,
 
 
First of all we wanted to remind you that it is our understanding that self-employed individuals and independent contractors will be able to apply for a PPP loan starting tomorrow.  We expect or at least hope that we will receive more guidance on this before then as there are some things that are still not clear.
 
We have heard that some of you have already started to receive your PPP loan proceeds and hope that many of you will be receiving them soon.  Accordingly, we felt it important to send a summary of our thoughts on what you should do with the proceeds to ensure that as much of the loan is forgiven as possible.  Please understand that once again this our best interpretation of the Act and the guidance released so far from the SBA and/or Treasury.  The Interim Final Rule released on April 2 by the SBA did say that more guidance would be released.  We will update you once again when that happens, if necessary.
 
Following are our recommended best practices to ensure as much forgiveness as possible:
 
Open a new bank account – While this is not a requirement, we feel that it would be a prudent step to receive the proceeds in a new account and/or transfer to a new account if already received.  When you need to pay a qualified expense (payroll, rent, utilities) , transfer only the money needed to pay that expense to your operating or payroll /checking account an then pay that expense.  Keep a copy of the cancelled checks, bank statement and invoice/payroll record supporting that expense in a separate file.  We believe these steps will provide a proper paper trail of the use of the funds.
 
Timing of the use of the funds – You may be eligible for forgiveness if you spend the proceeds on qualified expenses during the 8 week period following the date of origination of the loan.   Accordingly you have 8 weeks from the date of receiving loan proceeds to spend the money on qualified expenses.
 
What are qualified expenses? – Qualified expenses include “payroll costs”, payments of interest on mortgages (originated prior to 02/15/2020), rent and utility payments. “Payroll costs” are generally the same costs used to calculate “Average Monthly Payroll” when you applied for the loan.  Once again those are salary, wages, commissions or similar compensation, cash tips, vacation and sick pay, employer paid group insurance premiums, retirement contributions and state and local taxes. For and independent contractor and sole proprietors it is defined as net earnings from self-employment or similar compensation.  Presumably “payroll costs” would not include the equivalent 8 weeks of salary over $100,000. 
 
75% must be used on “payroll costs” – It is critical to note that even though interest, rent and utilities are qualified expenses, at least 75% of the loan proceeds must  be used on payroll.  The Treasury has made it very clear that the purpose of this program is to protect paychecks, thus the 75% rule.  We suggest that you calculate that number up front and  if possible keep track of it separately somehow.  For example if you received a loan for $250,000 at least $187,500 should be used for payroll.  Make sure that you can cover that amount with your payroll in 8 weeks!
 
100% forgiveness requires that the funds are used to retain workers and maintain payroll – So far clear guidance on what this means is minimal other than was included in the original act.  In essence what we believe this means is that during the 8 week period after the loan date, you must have the same number of employees (FTEs) and same amount of payroll as you did prior to February 15, 2020.  There are two computations to be made here; reduction in forgiveness based on decrease in number of employees and reduction based on decrease in salaries:
 
Reduction based on decrease in number of employees = 
            
Payroll Cost  X Average FTEs per month during 8 week period / either Average FTEs per month from (02-05-2019 to 06-30-2019) or (01-01-2020 to 02-29-2020)
 
Reduction based on decrease in salaries = 
 
Payroll Cost – the amount of any reduction in wage that is greater than 25% compared to the most recent quarter. What? In simple terms we believe that this means you have to pay your employees at 75% of what you were paying them before. Do that and this provision will not apply.
 
Realizing that some businesses are closed, there is also a provision that in general says that the above reductions in forgiveness will not apply if any reduction in employees or wages is corrected by June 30, 2020.  In other words, if you are able to have the same amount of FTEs and payroll costs by June 30 as you did before the shutdown, and you only pay for qualified expenses as per above then you should meet the 100% forgiveness test.  Again we expect more guidance in this area (probably right after we hit send on this email)! 
 
How do I request forgiveness of the loan and what will I need to provide? – We believe that you will submit an application to your lender (yet to be provided).  With the application we believe you will need to submit the following (from the SBA Loan Checklist) at a minimum:  
 
1.Copies of payroll tax reports file with the IRS (including Forms 941, 940, state income and unemployment tax filing reports) for the 8 week period following the origination of the loan.
2. Copies of payroll reports for each pay period for the 8 week period following the origination of the loan. Gross wages including PTO (which might include vacation, sick, and other PTO) should be reflected.
3. Documentation reflecting the health insurance premiums paid by the company under a group health plan including owners of the company for the 8 week period following the origination of the loan should be provided. Copies of the monthly invoices should suffice.
4. Documentation of all retirement plan funding by the employer for the 8 weeks following the origination of loan should be sufficient. Copies of work papers, schedules and remittances to the retirement plan administrator should be available.
5. Copies of all lease agreements for real estate and tangible personal property should be presented along with proof of payment during the 8 week period following the loan origination date. 
6. Copies of all statement of interest paid on debt obligations incurred prior to February 15, 2020 indicating payment amounts and proof of payment for the 8 week period following the loan origination date.
7. Copies of cancelled checks, statements or other evidence of utilities paid during the "covered period" for the 8 week period following the loan origination date.
 
Again we suggest that you create a separate file and keep copies of the above during the 8 week period so that they are easily accessible when you need them!
 
What happens if some or all of my loan is not forgiven? –If some of the loan is not forgiven, then it simply turns into a permanent loan with interest at 1.0% and a term of 2 years. Payments are deferred for the first 6 months, although interest still accrues.  
 
We know that this is a lot to digest and that some things are not very clear.  Again we expect more guidance, but wanted to get you this information as soon as possible to ensure that you have the proper procedures in place as you receive and start spending this money.  Please let us know what we can do to help you!
 
Finally if you feel that others might benefit from this information feel free to share this email.  Please just make sure that you share the email in its entirety so that the details are not misconstrued and that you remind them to be in touch with their CPA and banker.
 
Sincerely,
 
Brad, Pat, Michelle, Brad W., Chris, Matt, Kelsey, Theresa, Marian, Cindy and Gaby
 
 
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