Nov 19, 2020
Yesterday, the U.S. Treasury Department and Internal Revenue Service (IRS) released guidance clarifying the deductibility of expenses paid with paycheck protection program (PPP) loan funds.
What is the significance of the new guidance?
Previously, it was unclear what would happen if a taxpayer incurred the expenses in one year (2020), but received forgiveness in the next year (2021).
Rev. Rul. 2020-27 states if a business reasonably believes a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Meaning, if you used all of your PPP funds in 2020 and expect to receive full forgiveness, those expenses are not deductible, regardless of whether or not you have applied for or have received forgiveness notification as of the end of 2020.
What happens if loan forgiveness is partially or fully denied in 2021 after one has filed their 2020 return?
Revenue Procedure 2020-51 establishes a safe harbor for taxpayers whose loan forgiveness applications are partially or fully denied, or who decide not to apply for forgiveness after filing their 2020 tax return.
While these expenses may ultimately become deductible with a future act of Congress, we encourage you to connect with your William Vaughan Company advisor to assist you in determining the best path forward for you and your business.
Need further PPP guidance? Check out our COVID-19 Resource Center.
Oct 26, 2020
On Friday, October 23, Ohio Governor Mike DeWine approved several new programs aimed to provide much-needed relief to small businesses, restaurants/bars, and low-income families negatively impacted by COVID-19. These programs include:
Small Business Relief Grant – This program will designate up to $125 million of funding received by the State of Ohio from the federal CARES Act to provide $10,000 grants to small businesses with no more than 25 employees to help them through the current crisis. The program will be administered by the Ohio Development Services Agency. If you are a small business with no more than 25 employees, you can apply for one of the first-come, first-serve grants starting on November 2, 2020. Businesses can use the grants to pay for various expenses including mortgages, rent, utilities, salaries, health care premiums, business supplies, and other related operational costs. Click here to review the terms & conditions of the program. Ineligible businesses include, but are not limited to nonprofits, private schools, clubs, etc.
The Bar and Restaurant Assistance Fund – This program is designed to assist Ohio’s on-premise liquor permit holders. Governor Mike DeWine has designated $37.5 million of funding received by the State of Ohio from the federal CARES Act to provide $2,500 assistance payments to on-premise liquor permit holders to help them through the financial difficulties experienced during the COVID-19 pandemic. These permit holders have not been able to fully use their liquor permit and it’s had an impact on their business. The program, which will begin accepting applications on November 2, 2020, will be administered by the Ohio Development Services Agency. Click here for more information on how to apply.
Home Relief Grant – Also accepting applications starting November 2, 2020, is the Home Relief Grant Program which will help eligible Ohioans who are behind on rent, mortgage, and water and/or sewer utility bills catch up on past payments back to April 1, 2020, and provide additional assistance through December 30, 2020. Ohioans can apply for assistance through their local Community Action Agency. Click here for more information on how to apply.
As always, we are here to provide assistance. If you have immediate questions or concerns, please reach out to your William Vaughan Company advisor today or call us at 419.891.1040
Oct 12, 2020
The last week-and-a-half saw a flurry of new Paycheck Protection Program (PPP) guidance. Here is an update on what changes were made:
A Streamlined process for loans of $50,000 or less
While this change does not go as far as was originally proposed – providing automatic forgiveness for loans up to $150,000 – it will still help a significant number of Borrowers. A new forgiveness application, Form 3508S, has been released for loans of $50,000 or less.
While forgiveness is still not automatic for these Borrowers, the confusing and administratively burdensome portions have been removed. These Borrowers do not need to compute or reduce their forgiveness amount by 1.) reductions in compensation or 2.) full-time equivalent employees. The result? Borrowers of loans of $50,000 or less will not be penalized for any reductions in wages or employees.
For those who are keeping track, there are now three different application forms for forgiveness:
- Form 3508 – Standard form for those who do not meet criteria for one of the other forms (form instructions here)
- Form 3508EZ – Can be used for loans of any size where there is no reduction in wages or full-time equivalent employees (with certain exceptions) (Form instructions here)
- Form 3508S – For all loans $50,000 and under regardless of any reductions in wages or full-time equivalent employees (form instructions here)
PPP and sales of businesses
Guidance related to the requirements of Borrowers who are selling their business or business assets was also released. For most cases of sales of businesses or business assets, the Borrower will need to complete the following before the closing of the sale:
- Notify their PPP lender of the planned transaction and provide copies of the proposed agreements
- Submit their forgiveness application along with all required supporting documentation
- Deposit funds in the amount of outstanding PPP loan balance into an escrow account with their PPP lender
Also, in certain cases, the SBA must approve the proposed transaction before it is executed.
10-month deferral period
When the PPP was created, payments on the loan were deferred for six months. This deferral period was later extended to 10 months from the end of the Borrower’s covered period. The latest guidance clarifies that loan documents executed prior to the extension to the 10-month deferral are automatically modified to the 10-month deferral and do not need to be re-written and re-signed.
What changes might still be coming to the PPP?
We could still see a change with respect to the tax-deductibility of expenses related to forgiveness. Currently, such expenses are not tax-deductible, and therefore create a taxable event.
There continues to be support for a second PPP. Most recently, Federal Reserve Chairman Jerome Powell commented on the need for additional support for small businesses. A second round of stimulus would likely be much more targeted.
If you have questions about how these new changes may impact your business, please reach out to your WVC Advisor or our WVC PPP Loan Task Force leader, Kate Matz at email@example.com or 419.891.1040.
Oct 01, 2020
As the pace of changes to the Paycheck Protection Program (PPP) has relaxed, many are wondering about the current status and potential changes yet to come. We wanted to share with you some of the discussions occurring at the federal level about possible next steps. While there appears to be strong bipartisan support for these additional actions in concept, the specific details will likely change throughout the process.
What is the status of PPP and forgiveness?
- $525 billion was lent to 5.2 million businesses.
- Most lenders are now accepting forgiveness applications.
- As of 9/24, the SBA had received 96k forgiveness applications but had not completed the processing of any of them.
What is the latest guidance related to PPP forgiveness?
On 8/24, additional guidance was released regarding the following:
- C or S Corporation owners with less than 5% ownership are not subject to the compensation caps
- Expenses attributable to a tenant are not eligible for forgiveness.
- Rent payments to a related party are capped at the amount of mortgage interest owed on the property.
- Related party mortgage interest is not eligible for forgiveness.
What changes might still be coming to the PPP?
- There continues to be bipartisan support in Congress for blanket forgiveness of “small” loans – typically discussed as $150,000. The exact terms and dollar amount still need to be negotiated.
- There continues to be some bipartisan support for tax-deductibility of expenses related to forgiveness.
- Congress has been slow to act, and it is likely we will not see movement on these items until after the election.
Will there be a second PPP?
Maybe. Again, this is a topic that Congress continues to discuss. Eligible businesses would likely be much more targeted in this round. We are likely to see a lower cap on the size of business (as measured by the number of employees) and it is likely that businesses will need to demonstrate they have been significantly negatively impacted.
What should I be doing now?
- Continue to monitor our WVC COVID-19 Resource Center.
- Calculate your loan forgiveness amount using a tool such as our forgiveness calculator.
- Understand your lender’s process and timeline for forgiveness applications.
- In most cases, it makes sense to sit tight and wait for the final changes to work their way through Congress. Your forgiveness application is due 10 months after the end of your Covered Period, so you have time.
- Reach out to your WVC Advisor or our WVC PPP Loan Task Force leader, Kate Matz to discuss the above and plan for your specific situation.
Connect with the author:
Kate Matz, CPA, CEPA, CVGA, CGMA
Value Growth Practice Leader, William Vaughan Company
firstname.lastname@example.org | 419.891.1040
Aug 28, 2020
The Internal Revenue Service and State tax departments have experienced delays in tax return processing due to the COVID-19 pandemic. A current delay in the processing of payments received is affecting both Individual and Trust income tax filings. Taxpayers across the country have received tax notices from both the IRS and State tax departments that are citing tax amounts due with penalties and interest tacked on even though the taxpayers timely paid the tax amount due with their filings. Situations have occurred where the payment due was electronically withdrawn or check cashed, but the payment has not been applied to the account appropriately. Other situations have occurred that the payment check was received by the taxing agency but not yet cashed. Either way – the tax payments being applied to these accounts have a definite lag time. The lag time, however, was not stopping the tax departments from sending out balance due notices.
On August 21, the IRS posted an update on their website about these notices and that they are suspending future mailings until they have caught up on processing the mail and payments they have received. In addition, they will be providing penalty relief for any dishonored checked that they’ve received from March 1 to July 15 due to the processing delays. While the policy to suspend these future mailing has been put in place, there could still be mailings that were sent out prior to this policy that are still moving through the USPS system.
What Should You Do if You Received One of These Notices?
- Let your tax preparer know if you’ve received one of these notices so they are aware of the situation.
- Make sure you have documentation of the payment that you made. It should equal the balance the notice is showing due before penalties and interest. If this is not the case, your tax preparer can assist with looking into the variance for you.
- If you sent the payment via certified with return receipt, hold onto the receipt records.
- Finally, closer to the due date of the notice unless the IRS has released additional guidance, either the tax preparer with a valid Tax Power of Attorney or the taxpayer should call the tax agency to confirm the payment is finally applied to the account and nothing further is due.
The tax departments are currently inundated with phone calls and their call centers are not able to keep up with the volume. Our advice would be to give time for them to apply the payments and for the departments to clear up their processing delay.