Paycheck Protection Program...© Aronson LLC | aronsonllc.com | Paycheck Protection Program: The...

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© Aronson LLC | aronsonllc.com | Paycheck Protection Program: The Road to Forgiveness May 28, 2020

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Page 1: Paycheck Protection Program...© Aronson LLC | aronsonllc.com | Paycheck Protection Program: The Road to Forgiveness May 28, 2020

© Aronson LLC | aronsonllc.com |

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

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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

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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%

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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

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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?

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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

[email protected]

Jeff Gershen

301.231.6232

[email protected]

Bill Foote

301.231.6299

[email protected]

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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