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Several important developments on the PPP and EIDL programs

Wednesday, May 13, 2020
by Barb

Since our last CARES Act email concerning the Economic Impact Disaster Loan (“EIDL”) and Payroll Protection Program (“PPP”) there have been several important developments.

Here are a few common questions:

What tax dates have been extended?

For individuals, the due date for your 2019 form 1040, payment for any balance due on your 2019 form 1040, and your first quarter estimated payment for your 2020 1040 have all been moved from April 15, 2020 to July 15, 2020.  The due date for your second quarter estimated payment for your 2020 1040 has been moved from June 15, 2020 to July 15, 2020.  If you need additional time to file your 2019 return after July 15, 2020 an extension can be filed to extend filing to October 15, 2020.

For C corporations, the due date for your 2019 form 1120, payment for any balance due on your 2019 form 1120, and your first quarter estimated payment for your 2020 1120 have all been moved from April 15, 2020 to July 15, 2020 The due date for your second quarter estimated payment for your 2020 1120 has been moved from June 15, 2020 to July 15, 2020.  If you need additional time to file your 2019 return after July 15, 2020 an extension can be filed to extend filing to October 15, 2020.

For estate and trust income tax returns and gift tax returns, and FBAR returns, your 2019 form 1041, form 709, and form 114 have been moved from April 15, 2020 to July 15, 2020.  If you need additional time to file your 2019 return after July 15, 2020 an extension can be filed to extend filing to October 15, 2020.

IRA, various qualified retirement plan, HSA. Archer, and MSA contribution deadlines which were originally April 15, 2020, have also been extended to July 15, 2020.

For Texas entities, the due date for your 2020 (calendar year end 2019) Texas Franchise Tax Report, payment of any tax due, and Public Information Return has been moved from May 15, 2020 to July 15, 2020.  If you need additional time to file your return after July 15, 2020 an extension can be filed to extend filing to November 15, 2020, but payment is still due July 15, 2020.

Is there any PPP money still available?

Yes.  If you haven’t applied, you may still have a chance.  The application process only takes about 20 minutes. I found a smaller bank that processed and funded a clients’ loan in five days. 

How do I book receipt of the funds?

Remember.  These funds are a loan until they are forgiven.  So they belong in a note account, and not an asset, equity, income, or expense account.  Set up a note account called Note EIDL and Note PPP.  When you get the money and deposit it into your cash account, book it there.  If and when the loans are forgiven, set up two income accounts with the type “other income”, and call one PPP Income and one EIDL income and move the money out of the note account and into the income account via journal entry or an entry in the note account.   

Who decides if the PPP loan is forgiven?

Your bank.  Accordingly, it would likely be a good idea to get with your bank approximately 30 days after your loan has funded to review with them how you have spent the money and if it is forgivable, documentation they may require for forgiveness, and if they have an application/department to send the forgiveness application.

If you have made a mistake, some banks may allow some flexibility to recategorize expenses and “undesignated” improper expenses and “re-designate” proper expenses.  

Remember, much of this money must be spent within the 8 week period after funding and as the eight week period comes to a close, your banker is going to be deluged with these questions, so better to get an idea of what they will and will not find acceptable long before that deadline approaches.  Unfortunately, they may not have an answer.  The banks are waiting for guidance from the SBA which has still not been issued.

At least one source has said if you got both EIDL grant money and PPP money, the EIDL grant portion will be applied toward you PPP and will not be forgiven.  This is new.  That is not what the law said.  You may want to hold back the EIDL grant money you received in the event it will impact your PPP loan forgiveness.    

How do I get the PPP loan forgiven?

At present there are no regulations in place that discuss this in great detail so we are left with what the statute and other experts say.

One catch is you have to spend the money within the 8 week period from when you get the loan.  Because of this it is important to keep track of the date you got funded for the PPP loans.

Generally EIDL grants will be forgiven so long as they are used for working capital, inventory, materials, equipment purchases, real estate (rent) payments,  loan or credit card payments, and other operating expenses (such as automobile expenses, advertising, dues and subscriptions, insurance, professional fees, office supplies, travel, utilities).  They may also be used for payroll and sick leave expenses, but see the caution below about double dipping.  The funds are not supposed to be used for physical repairs, expansions, bonuses or refinancing long-term debt. 

Generally, PPP loans may be used for payroll (including employer portion of healthcare and retirement benefits, of up to $100,000.00 per employee before retirement and healthcare benefits, but not employer portions of federal payroll taxes), mortgage interest, rent,  and utility expenses.  Further, to get the loan forgiven:

·        at least 75% must be spent on payroll;

·        the other 25% on other allowable costs;

·    your full time employee head count cannot decline from average monthly levels during the 2019 or the past 12 months (there are exceptions for seasonal employees); and

·        employers cannot cut salaries or wages.


If you let people go between February 15 and April 26, you have until June 30 to restaff.  If you have staff refuse to return after their jobs have been offered you need to be sure to document it in writing to prove you attempted to re-hire.

Accordingly, every time you cut a check to be used for EIDL or PPP purposes, we recommend you make a notation in the memo field in QuickBooks (but not on the actual check, so you can change it if need be) to advise it has been used for EIDL or PPP purposes.  Some people are taking this one step further to ensure they can track where the money goes and are putting the EIDL and PPP money in two separate new bank accounts, separate from their operating funds.  Given the amounts at stake, an ounce of prevention could be worth a pound of cure.

Further, the funds cannot be used for the same purpose.  So be sure you are not writing checks to the same general ledger account for both funds.  

The PPP loan is 2.5X monthly payroll.  How can I spend 2.5X payroll in 2 months (8 weeks) if I am just using it to pay payroll?

You can pay you or your employees a bonus.  You don’t have to pay your employees the bonus; it can be just you.  You can also use it for other permissible purposes as described above.

I’m a self employed Schedule C business.  I don’t have any employees.  I don’t have payroll.  How do I spend the PPP money?

 Cut yourself a check.  Charge it to owner’s draw.  Cash it. Just like the way you normally pay yourself.   If the business needs the money, redeposit it as an increase to the owner’s note payment.  

Is loan forgiveness taxable?

Kind of.  To the extent the PPP loan is forgiven, the expenses you use it for are not tax deductible.  Accordingly, you need to keep track of the expenses you use the loan for so that your bank can determine if the loan is forgivable and so that you properly prepare your taxes.  As near as we can tell, the same is not true of the EIDL…..yet.

 

 




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