Paycheck Protection Program...© Aronson LLC | aronsonllc.com | Paycheck Protection Program: The...
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Paycheck Protection Program:
The Road to ForgivenessMay 28, 2020
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Welcome
Mark Robins
Partner, Nonprofit Services
Jeff Gershen
Partner, Tax Services
Bill FootePartner, Financial Advisory
Services
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Agenda
Background
Forgiveness Updates
SBA Form 3508
Attendee Questions
Background
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PPP Notable Dates
27 March
CARES Act signed
2 April
IFR #1
3 April
Lenders begin accepting PPP loan applications
24 April
How to Calculate Loan Amounts
30 April
IRS Notice 2020-32
13 May
FAQ #46
15 May
Forgiveness application form
18 May
Extended safe harbor repayment deadline
22 May
IFR #14, IFR #15
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PPP Statistics
64%
14%
15%
7%
PPP by Loan Size
$1M and Under
>$1M - $2M
>$2M - $5M
>$5M
CA
DC
FL
IL
MD
MI
NJ
NY
OH
PA
TX
VA
PPP Funding - Selected States
Source: Small Business Administration. Approvals through 5/23/20.
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Polling Question #1
What is the amount of your PPP Loan?
A. $1M and Under
B. >$1M - $2M
C. >$2M - $5M
D. >$5M
Forgiveness Updates
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The “75% Rule”
Then Now
General requirement that 75% of loan
proceeds be used for payroll costs
PPP loan forgiveness cannot exceed quotient
of x ÷ y, where x = forgivable payroll costs, and
y = 75%
Not more than 25% of loan forgiveness may be
attributable to non-payroll costs
Not more than 25% of loan forgiveness may be
attributable to non-payroll costs
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Forgivable Payroll Costs
Then Now
Forgivable payroll costs: • Gross wages/salaries;
• Employer health insurance contributions;
• Employer retirement contributions;
• Employer state and local payroll taxes
Forgivable payroll costs: • Gross wages/salaries;
• Employer health insurance contributions;
• Employer retirement contributions;
• Employer state and local payroll taxes
Exclude from gross wages/salaries: • Amounts > $100,000 annualized cap
• Amounts for non-US residents
• Qualified FFCRA wages
Exclude from gross wages/salaries: • Amounts > $100,000 annualized cap
• For business-owners, amounts > 8-week equivalent
of 2019 amounts
• Amounts for non-US residents
• Qualified FFCRA wages
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Forgivable Payroll Costs (cont.)
Then Now
Exclude from health/retirement: • For corporate business-owners, amounts > 8-week
equivalent of 2019 amounts
• All amounts attributable to partners in partnerships
(and LLCs filing as partnerships)
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Forgivable Non-Payroll Costs
Then Now
Forgivable non-payroll costs: • Rent
• Utilities
• Mortgage interest
Forgivable non-payroll costs: • Rent (real and personal property leases)
• Utilities
• Mortgage interest (real and personal property)
Leases in force before 2/15/20 Real and personal property leases in force
before 2/15/20
Utility payments under service agreements that
began before 2/15/20
Utility payments under service agreements that
began before 2/15/20
Mortgage obligations incurred before 2/15/20 Real and personal property mortgage
obligations incurred before 2/15/20
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Eight-Week Period
Then Now
Loan forgiveness based on total amount spent
on forgivable costs during eight-week period
beginning on date of loan disbursement
Loan forgiveness based on forgivable costs
paid or incurred during eight-week period
beginning on date of loan disbursement
Costs incurred during eight-week period and
paid (in “normal course”) after eight-week
period are eligible for forgiveness
PPP borrowers with weekly/bi-weekly payroll
schedule may elect to align start of eight-week
period with first day of first pay period following
loan disbursement (payroll costs only)
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Potential Reductions to Loan Forgiveness
Then Now
If EE headcount levels not maintained
(comparison of avg. monthly FTEs)
If EE headcount levels not maintained
(comparison of avg. weekly FTEs)
If individual salaries decrease > 25% (EE
annualized comp. levels < $100,000)
If individual salaries decrease > 25% (EE
annualized comp. levels < $100,000)
Salary/wage reduction applies only to portion
of decline not attributable to the FTE reduction
Borrowers can restore any reduction in FTEs
or salaries that occurred between 2/15/20 and
4/26/20 if they do it by 6/30/20
Borrowers can restore any reduction in FTEs
or salaries that occurred between 2/15/20 and
4/26/20 if they do it by 6/30/20
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FTE Calculations
Then Now
FTE not defined Determine FTE value for each EE by dividing
average hours/week by 40, rounded to nearest
tenth (capped at 1.0)
FTE not defined Simplified calculation may be used, where EE
working > 40 hours/week assigned a value of
1.0, and EE working < 40 hours/week assigned
a value of 0.5
Exception for offers to rehire that were
declined
Exception for (i) offers to rehire that were
declined and (ii) terminations for cause,
voluntary resignations, voluntary requests for
reduction in hours
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Tax Treatment
Then Now
PPP loan forgiveness will not be treated as
taxable income to borrowers
PPP loan forgiveness will not be treated as
taxable income to borrowers
According to IRS Notice 2020-32 the
associated forgivable costs will not be tax
deductible
According to IRS Notice 2020-32 the
associated forgivable costs will not be tax
deductible
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Forgiveness Process
Then Now
Forgiveness request to be submitted to lender Forgiveness request to be submitted to lender
using SBA Form 3508
No stated deadline for submitting forgiveness
request
No stated deadline for submitting SBA Form
3508
Lender to make decision on loan forgiveness
within 60 days of the request
Lender to make decision on loan forgiveness
within 60 days receipt of SBA Form 3508, SBA
to remit forgiveness amount to the lender
within 90 days
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SBA Review
Then Now
FAQ 39: “To further ensure PPP loans are
limited to eligible borrowers in need, the SBA
has decided, in consultation with the
Department of the Treasury, that it will review
all loans in excess of $2 million, in addition to
other loans as appropriate, following the
lender’s submission of the borrower’s loan
forgiveness application.”
FAQ 46: “Any borrower that, together with its
affiliates, received PPP loans with an original
principal amount of less than $2 million will be
deemed to have made the required certification
concerning the necessity of the loan request in
good faith.”
IFR #15: “SBA may begin a review of any PPP
loan of any size at any time in SBA’s
discretion.”
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Polling Question #2
How much of the loan are you expecting to
be forgiven?
A. Under 50%
B. 50% to 75%
C. Over 75%
SBA Form 3508
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Forgiveness Application
• PPP Loan Forgiveness Calculation Form
• Representations and Certifications
• PPP Schedule A
• PPP Schedule A Worksheet
• PPP Borrower Demographic Information Form (Optional)
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PPP Loan Forgiveness Calculation Form
Excerpt from SBA Form 3508, page 3
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PPP Loan Forgiveness Calculation Form
Excerpt from SBA Form 3508, page 3
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Representations and Certifications
Excerpt from SBA Form 3508, page 4
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Representations and Certifications
Excerpt from SBA Form 3508, page 4
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PPP Schedule A
Excerpt from SBA Form 3508, page 7
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PPP Schedule A
Excerpt from SBA Form 3508, page 7
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Supporting Documentation
• Third-party payroll service provider reports
• Payroll tax filings
• Bank account statements
• Cancelled checks and invoices
• Leases
• Not required to submit PPP Schedule A Worksheet/supporting details
• Document retention
– Borrowers must retain PPP-related documentation for six years after the date the loan is forgiven
or repaid in full
– Borrowers must also allow authorized SBA representatives access to documents upon request
Attendee Questions
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Forgivable Costs
• Can bonuses and hazard pay be considered forgivable payroll costs?
• Are wages for employees hired during our eight-week period eligible for forgiveness?
• Do one-time company 401k matches count toward forgiveness?
• Is a 2019 retirement contribution paid during the eight-week period a forgivable cost?
• How will “non-W2” employees be handled?
• Are leases for vehicles considered personal property leases for forgiveness purposes?
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Forgivable Costs
• Is there an “alternative covered period” for non-payroll costs?
• How do we handle cost incurred prior to the start of our eight-week period and paid during
the eight-week period?
• Is ____ considered a utility cost for forgiveness purposes?
• Can recruiting costs be considered a forgivable cost?
• Does rent to an affiliate company count for forgiveness?
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Potential Reductions to Loan Forgiveness
• With the salary reduction provision and the headcount reduction provision, aren’t we getting
dinged twice for the same thing?
• In organizations with part time employees, does reducing hours for some employees while
increasing hours for other employees affect loan forgiveness?
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Tax Treatment
• What happens if we receive forgiveness in a subsequent tax year?
• Will IRS Notice 2020-32 be overturned through legislation?
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Schedule C Filers
• For a sole proprietor, can PPP loan proceeds be used to pay draws?
• What does “owner compensation replacement” mean?
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Accounting & Financial Reporting
• Is PPP loan forgiveness accounted for as revenue or a contra-expense?
• Not-for-profit
– Option 1 – Record debt when received, accrue interest, and contribution revenue if/when forgiven.
– Option 2 – Treat as a conditional contribution. Record a refundable advance (liability) when the funds are
received. Contribution revenue would be recognized as qualifying expenditures are incurred that are eligible
for forgiveness.
• For-profit
– Option 1 – Record debt when received, accrue interest, and gain on extinguishment if/when forgiven.
– Option 2 – Treat as a conditional contribution (use NFP guidance)
– Option 3 – Use IAS 20 – Similar to contribution accounting but provides the options to net revenues with
related expenses.
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Odds and Ends
• What do you do if you do not use all of the PPP funds?
• What's the latest on possibly extending the eight-week period?
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Polling Question #3
I expect Congress to extend the “Covered
Period” for PPP forgiveness beyond eight
weeks.
A. Yes
B. No
C. What? They’re changing the rules again?
Closing
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Parting Thoughts
• Carefully track the usage of PPP loan proceeds and maintain appropriate documentation
• Continue to watch for additional PPP forgiveness guidance
• Pending legislation may result in significant changes to PPP forgiveness regime
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Contact Us
Mark Robins
240.364.2645
Jeff Gershen
301.231.6232
Bill Foote
301.231.6299
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Let Us Know How We Can Help!
• Debt restructuring
• PPP loan forgiveness and accounting
considerations
• NOL carryback analysis
• Forecasts and scenario analysis
• Business interruption claims
• Distressed M&A due diligence
• Impairment analyses