Tax Update Amid Virus Outbreak – volume 7
May 25, 2020
Hello Friends and Family,
Happy Memorial Day. On Memorial Day, 1955, Dwight D. Eisenhower issued a Proclamation of Prayer for Peace: “Whereas in tribute to these silent dead it is fitting that we lift up our voices together in supplication to Almighty God for wisdom in our search for an enduring peace…” Certainly a fitting resolution given the current state of turmoil in which we find ourselves.
Allow me a personal note, I would like to thank my father, Col. George L. Sumrall, Jr (ret) and my mother for their 29 years of service to our country in the United States Army. My father served in Vietnam and was abroad when I was born. And while not wearing a uniform, my mother served faithfully by his side. I am thankful to them both for their dedication to this country, their calling and their family.
And after a wonderful three-day weekend, back to madness:
Paycheck Protection Program
FAQ Question 46
The Small Business Administration has been very busy over the past two weeks. Early last week the SBA updated its frequently asked questions highlighted by Question 46. Question 46 establishes a safe harbor for small borrowers to rely on their loan application good-faith certification that the loan was “necessary”. If you will remember, originally the SBA requested all borrowers to re-think the concept of necessary. The safe harbor established by Question 46 means that borrowers whose loan proceeds are less than $2M will not be audited and may not subject to SBA review. Accordingly, by default, the borrow is deemed to have made good-faith certification about the necessity of the loan.
SBA Forgiveness Application
On March 15, the SBA issued its first draft of the PPP loan forgiveness application. The 11-page document includes several schedules along with explanations and some definition of terms. There are several items of note:
- The formula used to calculate the amount of loan for “highly compensated” employees, capping the salary for these employees at $100,000 is now different than the formula used to request forgiveness for these employees. The difference is roughly $1,300 per employee. This means that if you spend the same amount of salary capped at $100K, your forgiveness will be $1,300 less than the loan amount for those same employees.
- The definition of a full-time employee for loan forgives purposes is 40 hours per week. Precedent was set with the passage of the Affordable Care Act that a full-time equivalent was anyone who worked 30 hours per week.
- The loan forgiveness “covered period” now includes a choice of an “Alternative Payroll Covered Period.” In general, the alternative period begins the first day of the pay period following the disbursement of the loan proceeds.
- The loan application includes a paragraph addressing FTE Reduction Exceptions – “Indicate the FTE of (1) any positions for which the borrower made a good-faith, written offer to rehire an employee…” Presumably this is the SBA attempt to address situations where employees are able to return to work but refuse because they are making more on unemployment that through their regular job (In part thanks to the extra $600 weekly added to unemployment compensation by the feds).
AICPA PPP Forgiveness Spreadsheet
On March 21, the American Institute of Certified Public Accountants (AICPA) released its (subject to change) version of the PPP loan application forgives spreadsheet. While I have not always enjoyed my relationship with the AICPA, their Corona-virus Resource Center has been outstanding. You can download the spreadsheet from our website: https://badgersumrall.com/covid-19-tax-questions/
Stimulus Checks
Or at least we thought so. Many of you have received direct deposit or checks of stimulus funds in recent weeks. Congratulations! You will all share in my rejoicing when my IRS issued debit card arrived in the mail. I have no idea how the IRS calculated the amount of my stimulus. It did not match what I was expecting based on my 2018 tax return. Oh well!
If you receive a debit card, you may spend like any other debit card. You may also withdraw funds from ATM machines without fees if the ATM is “in-network”. In-network means an ATM on the AllPoint Brand ATMs. You may also withdraw funds from a bank teller without fee for the first transaction. If you use a teller more than once, it will cost you $5 per transaction.
More Relief
We all watched the, dead-on arrival, $3 trillion House bill as it was passed and sent to the Senate. Rumor is there will be more relief. Rumblings are that the Senate is considering a small bill that will, among other things, extend the 8-week PPP spending period. We will wait and see.
Stay safe and healthy. We are all in this together.
Shawn G. Sumrall, Principal
Badger, Sumrall & Co., CPAs, pc
(540) 364-4930
Guiding those we encounter to success.