Tax Update amid Virus Outbreak – 8
July 17, 2020
Dear friends and family,
I hope you are all well and safe. We are now approaching five or more months with hope but no cure, and that is not just for the virus but the economy as well. Is there an economic recovery curve? Is it V, U, L, or Wave shaped? What we do know is the beginning of extension season is July 15th.
Thank you to all of our clients who sent in their tax documentation. And thank you to those who responded with “we need more time”. For you, rest assured, your returns are extended. Yes, July 15th was the new April 15th!
The extensions allow us to wait until October 15th to file your federal returns. We encourage you to gather your information as soon as you can so we can have time to process the data as timely and accurately as possible.
More stimulus could be on the way
In May, the U.S. House passed the HEROES act, promising more help to struggling families and expanding stimulus to a broader range of the public. The bill is currently stalled in the Senate, but momentum seems to be building and the President has expressed his intent to sign the bill once passed. We are hearing rumblings a bill may be complete by the end of the month. The following CNBC article is a nice summary: https://www.cnbc.com/2020/05/16/what-you-need-to-know-about-the-heroes-act.html
Clarification continues on PPP forgiveness
The Small Business Administration along with U.S. Treasury continue to work on a clarification project to the Paycheck Protection Program forgiveness guidelines. In May, the Treasury agreed to change the initial eight-week covered period (the time frame in which you were required to spend the loan proceeds) to 24 weeks. All loans automatically get the new 24-week covered period unless the borrower elects otherwise. Borrowers who received loan proceeds prior to June 5, 2020 can elect either the original eight-week. For borrows using the 24-week period, the threshold for payments made to a single, non-owner employee which was limited to $15,385 is increased to $46,154.
The forgiveness “clock” begins the day the covered period ends, and you have 60 days to submit the forgiveness application. Currently, we know of no banks that are accepting forgiveness applications. Instead, we understand many large lending institutions will build their own forgiveness calculators and websites to accept the documents and applications. Our recommendation is to take advantage of the 24-week covered period. We believe this provides tremendous flexibility in using the funds to ensure full forgiveness. Our recommendation is to be patient and wait before filing the forgiveness application. The American Institute of Certified Public Accountants (AICPA) published is advocating for the same advice: https://blog.aicpa.org/2020/07/5-reasons-borrowers-shouldnt-rush-their-ppp-forgiveness-applications.html#sthash.VTcjnWyh.6ik6o2ui.dpbs
Speaking of forgiveness, the IRS continues to take the stance that expenses paid for by using PPP funds will not be deductible on the taxpayers 2020 tax return. While we firmly believe the IRS completely misses the spirit of the CARES Act and PPP loans, there may be little we can do but hope. The AICPA believed two months ago there was an 80/20 chance the IRS would reverse its course on deductibility, but now the AICPA believes the chances may be as little as 50/50. Of course, we will continue to monitor these developments as they happen and keep all of you informed.
The news recently has shifted to different national and global events in recent weeks, but the reality of the virus and its health and economic impact still exist. We continue to hear from our clients who are struggling financially. A few of our friends have contracted the virus as well and we are grateful to report they have fully recovered. We continue working with caution.
Resources are available on our website. I regularly attend the AICPA virtual Town Hall meetings weekly in an effort to stay on top of the never-ending changes. We will continue to update all of you as news breaks.
Stay safe.
Shawn Sumrall and the Badger, Sumrall Team