There have been a few major developments in the PPP loan program that you may need to be aware of. I had brought both of these issues up in the webinar I did earlier this week, and some additional details have emerged since then. There were some people that contacted our office that weren’t able to make it on the webinar. Unfortunately, we had issues with the recording and were not able to send that out. My plan was to re-record that over the weekend with some of these major updates.
For many of you who are clients, if you got money from one of the SBA programs, we need copies of your loan documents and details if you got either the PPP loan or any money from the disaster EIDL program. If you have not already done so, please make arrangements to send the documents to our office. Please note that we strongly recommend sending this through our secure Liscio system. Contact us if you are not set up on that system.
Here are a few of the major issues you may want to know about:
Just yesterday, April 30, 2020, the IRS issued Notice 2020-32 regarding the PPP loans. You can download a copy of it here: https://www.irs.gov/pub/irs-drop/n-20-32.pdf In particular, as some had speculated, this provision made any deductions for such things as payroll, rent or utilities that are normally deductible under the tax code, as non-deductible expenses if used for forgiveness on the PPP loans.
As mentioned in the webinar, the second act signed last Friday titled the “Paycheck Protection Program Increase Act of 2020,” included provisions which discussed the economic need for the loan. While the original loan paperwork required that you certify your need for the loan to support operations, it did not require you to prove anything. Due to some large businesses coming under public scrutiny such as Shake Shack, Ruth’s Chris Steakhouse and Harvard University, there has been a public outcry for some of these establishments taking the money. The second act stated that if a company believed it was not necessary to have those funds and repaid them by May 7, 2020, then they will be deemed to have complied with establishing the need requirement and will not be questioned about their original intent of the loan. At the same time, the Treasury department put out an updated Frequently Asked Question document in which they added question #31 which specifically dealt with this provision of the act in the context of larger, publicly-traded companies. There was a specific call for these publicly-traded companies to return the money and several millions of dollars have been returned already. This may have implications on smaller companies and we are watching this closely.
The first act, known as the CARES Act, included $625 million in money for the SBA for salaries and expenses to deal with these loan programs. The second act allocated another $2.1 billion to the SBA for salaries and expenses. There is a belief that much of this money will be used to audit these loans and their forgiveness. While we believe the biggest target will be larger companies, we strongly recommend you document several things well:
a. Well-documented expenses for the forgiveness of the PPP loans which include payroll costs, rent, utilities and mortgage interest used for this purpose.
b. Well-documented payroll hours and records to establish the levels of full-time equivalents in the workforce
c. A well-documented reasoning for your need for the purpose of this loan. While there is no specific requirement or guidance on this at this point, I would document issues you have seen like lost sales revenue, slow or unpaid customers, industry downturns and any economic conditions which brought you to your conclusion that you needed this loan.
If you have any questions, or if we can help in any way, please do not hesitate to contact our office.
Stay safe and healthy!