The Treasury Department and Small business Administration’s (SBA) Latest Guidance, Loan Forgiveness Application and the WVC Forgiveness Calculator
May 26, 2020
On May 15, the SBA released its Loan Forgiveness Application for the Paycheck Protection Program. The application outlines the computation for debt forgiveness. While there are still many questions that need to be addressed, the guidance helped clarify some larger items:
- The first day of the Covered Period for your PPP loan must be the same as the PPP Loan Disbursement Date and extends over the 56-day Covered Period. Borrowers with biweekly or more frequent payroll periods may elect to use the Alternative Payroll Covered Period that begins on the first day of their first pay period following the date when you receive the loan proceeds.
- Payroll costs that have either been paid or incurred in the 56-day Covered Period are both eligible for forgiveness. If a cost is incurred and paid in the Covered Period, it will only be counted one time toward the forgiveness calculation.
- Eligible Nonpayroll for forgiveness consist of:
- covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”);
- covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
- covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”).
- Under the SBA’s guidance, the total amount of cash compensation eligible for forgiveness for each individual employee cannot exceed an annual salary of $100,000, as prorated for the Covered Period; that is, it cannot exceed $15,385.
All guidance on the Loan Forgiveness Application can be found here. While we are expecting more guidance from the SBA, we advise our clients to keep careful and detailed records and documentation throughout this process to maximize forgiveness.
WVC Calculator
William Vaughan Company is working diligently to update our Forgiveness Calculator to meet the latest SBA guidance. We will be sending you the latest version as soon as possible. Keep an eye out for our email. If you do not already receive our timely communications, please subscribe to WVC Insights here.
Categories: Other Resources
Economic Impact Payments Received by Deceased or Ineligible Recipients
May 18, 2020
The CARES Act stimulus package passed by Congress in late March provided Economic Impact Payments to eligible recipients which been remitted throughout the last month. According to the Act, eligible individuals include U.S. citizens and qualifying resident aliens who are not a dependent of another taxpayer and have a work-eligible Social Security number with adjusted gross income (AGI) up to the following:
- $75,000 for individuals filing single or married filing separately
- $112,500 for the head of household filers
- $150,000 for married couples filing jointly
These eligible recipients have received or will receive payments of $1,200 to individuals and $2,400 to married couples, plus $500 per dependent child. Taxpayers will receive a reduced payment if their AGI is between:
- $75,000 and $99,000 for individuals filing single or married filing separately
- $112,500 and $136,500 for the head of household filers
- $150,000 and $198,000 for married couples filing jointly
As with any new program, glitches have been identified. Eligibility was determined using 2018 or 2019 tax returns. Discrepancies between information on these previously filed returns and current status have led to deceased taxpayers, trusts, and other ineligible individuals mistakenly receive funds. Those ineligible to receive Economic Impact Payments include:
- Individuals who were deceased before the date of payment
- Individuals or married taxpayers filing separately with AGI greater than $99,000
- Taxpayers filing head of household with AGI greater than $136,500
- Married taxpayers filing jointly with AGI greater than $198,000
- Individuals who can be claimed as a dependent on another person’s return (For example, a child or student claimed on a parent’s return
- Individuals who do not have a valid Social Security number
- Nonresident aliens
- Individuals who filed Form 1040-NR, 1040NR-EZ, 1040-PR, or 1040-SS for 2019
- Individuals who are currently incarcerated
How do I determine if I received misappropriated funds?
The IRS has set up an Economic Impact Payment Information Center that includes information about which taxpayers are eligible and how to return payments received by those disqualified by the factors above.
In many instances, the family or beneficiaries of a deceased individual or trust have received payment on behalf of the deceased. This is particularly common in situations where the individual had passed away in late 2019 or 2020, and a 2019 tax return had not yet been filed on their behalf. By definition, these payments to trusts or family of a deceased individual are considered payments to an ineligible recipient.
What should I do if I received funds for a deceased or an ineligible recipient?
Economic Impact Payments given to deceased or otherwise ineligible recipients previously listed must be returned to the IRS. For payments received by joint filers where only one spouse is deceased or ineligible, only the portion of the payment made for the ineligible spouse must be returned ($1,200 unless the AGI exceeds $150,000). Ineligible recipients of the payments, or those who received payment on behalf of an ineligible or deceased recipient, should follow the IRS repayment instructions to return the payments.
If the payment was a paper check:
1. Write “Void” on the endorsement section on the back of the check.
2. Mail the voided Treasury check immediately to the appropriate IRS location.
3. Do not staple, bend, or paper clip the check.
4. Include a note stating the reason for returning the check.
If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:
1. Submit a personal check, money order, etc., immediately to the appropriate IRS location.
2. Write on the check/money order made payable to “U.S. Treasury” and write “2020EIP,” and the taxpayer identification number (Social Security number, or individual taxpayer identification number) of the recipient of the check.
3. Include a brief explanation of the reason for returning the payment.
Appropriate IRS mailing addresses can be found in the IRS repayment instructions located on the Economic Impact Payment Information Center.
If you feel you have received funds for an ineligible individual but are unsure how to proceed, contact your William Vaughan Company advisor and they can guide you through the appropriate process for your given circumstance.
Categories: Other Resources
IRS Denies Tax Deductions for Expenses Related to Payroll Protection Program Loan Forgiveness
May 11, 2020
What happened?
On April 30, 2020, the IRS released Notice 2020-32 (the Notice) answering a major tax question involving the Paycheck Protection Program (PPP). It ruled that any deductible expenses that result in forgiveness of a PPP loan will not be deductible in computing the taxpayer’s income. This conclusion contradicts the language in the CARES Act (the Act) under Section 1106(i) which states the cancellation of indebtedness of a PPP loan, under the provisions of Section 1106(b), “shall be excluded from gross income” in computing the taxpayer’s taxable income.
The IRS points out in the Notice that while the Act provides that PPP loan forgiveness is not taxable income, no provisions of the Act address the ability to deduct eligible expenses paid from such loan proceeds.
What’s Next?
Stay tuned! It is unlikely the end of this controversy. First, it is possible a taxpayer may decide to challenge this position in court. Whether they would or would not prevail is open to question, and the other big problem is being able to afford the litigation. The more likely scenario is that Congress would reverse the notice by simply enacting an amendment in the next Coronavirus bill (if there is one) to make clear expenses used to justify PPP loan forgiveness are deductible, regardless of any provision by the IRS.
Visit the WVC COVID-19 Resource Center for more insights by clicking here.
Categories: Other Resources, Tax Compliance, Tax Planning
SBA Data Exposure Highlights the Need for Cybersecurity Programs
Apr 23, 2020
On April 21, 2020, news sources* revealed the Small Business Administration (SBA) notified 8,000 applicants of the Economic Injury Disaster Loan (EIDL) program of a data exposure on the application website. The exposure, which occurred briefly on March 25, may have permitted applicants to view Personally Identifiable Information (PII) of other applicants. Current reports reveal the disclosure included names, Social Security numbers, tax identification numbers, addresses, dates of birth, emails, phone numbers, marital and citizenship statuses, household sizes, incomes, financial and insurance information.
If you learn you have been impacted by the data exposure, the Federal Trade Commission has provided specific guidance with checklists on their website for Identity Theft. The actions described in their checklists are based on the type of data loss. Please refer to this website on how to protect yourself.
It is unfortunate to have a data exposure during an already stressful time, but it further demonstrates the continued need for cybersecurity programs. WVC Technologies is here to assist you in making sure your company is operating securely whether it be updating your remote working policies, implementing a security practice, or preparing a business continuity plan.
*CNBC was the first to report on the data exposure from the SBA. For a full report, please see this article.
Connect With Us.
Tiffany Pollard, CISA
Risk Services Practice Leader
Categories: Risk Services
Making the Most of Your PPP Loan
Apr 10, 2020
You have applied for your Paycheck Protection Program (PPP) loan through one of the 1,800 participating SBA approved 7(a) lenders and you are awaiting the exciting news of your approval. In the meantime, have you considered how you will make the most of the funds? Here are a few recommendations as you consider how to best utilize the cash for your business.
Track Your Business Impact
For purposes of not only following the PPP loan certification guidelines but also to help you prioritize your immediate needs, we recommend keeping track of the pandemic’s impact on your business. A hard or electronic log noting the daily/weekly effects on your employees, vendors, and business cash flow will ultimately help you plan ahead and maximize your benefit. Furthermore, at the end of the eight weeks following your loan approval date, this will also help maximize your loan forgiveness.
Develop A Plan
If your operations are currently on hold or reduced, begin to outline varying scenarios of how operations may resume. To obtain full loan forgiveness, at least 75% of the proceeds will need to be used for payroll and you must have at least the same number of employees as of June 30, 2020, as you did as of February 15, 2020. Think about those employees currently on furlough, and when you will bring them back. Calculate various scenarios of operational levels, payroll amounts, and resulting loan forgiveness to guide your decision-making.
Maintain Detailed Records
The covered period of the PPP loan is eight weeks from the date you receive your proceeds. When you receive the proceeds, make note of the receipt date and determine your covered period. We also recommend that you deposit them into a separate account to allow for easier tracking of their use on eligible expenses. Additionally, if your bank activity is requested as part of the loan forgiveness considerations, you will only need to provide activity from this account rather than all operating activity.
Start a tally of your eligible expenses. As a reminder, these include payroll, benefits, retirement, rent, utilities, and mortgage interest payments. Your bank may ask you for a preliminary loan forgiveness calculation around the seven weeks into your eight-week covered period.
- For payroll, keep records of wages, healthcare costs, and retirement plan employer contributions.
- Keep separate records for rent, utilities and any mortgage interest paid
- Keep documentation of the number of employees you have as of June 30, 2020
- Pay particular attention to any payments made to employees under the Families First Coronavirus Response Act for Emergency Sick Pay or Emergency FMLA. Maintain records for any such payments, as they will reduce the PPP loan forgiveness amount to avoid “double-dipping”.
Note that PPP loan recipients cannot participate in the following CARES act benefits: Employee Retention Credit (provides for a tax credit equal to 50% of payroll taxes) or Delay of Employer Tax Payments (allows for the deferral of payment of employer payroll taxes until 50% due December 31, 2021, and 50% due December 31, 2022).
Categories: Other Resources, Tax Compliance, Tax Planning