Are You Confused About the PPP Loan?
by Hal Levenson on May 14, 2020 1:25 PM
Now that most companies have received the PPP loan, there are still unanswered questions about how to utilize the funds, the forgiveness process, timing, etc. On this week’s Trilogy Town Hall call, we asked our guests, Jim Haefele, CPA, Partner at Haefele Flanagan and Dennis Alessi, Esq., Partner at Mandelbaum Salsburg to provide some guidance around this complex issue.
Questions for Our Guests:
When does the 8 weeks start? When I applied for the loan, when I was approved, or when the money was deposited into my account?
- 8 weeks begins as soon as you are funded, and the money has hit your bank account.
What is the rule about accepting the loan and/or loan forgiveness if you are profitable during this period?
- It is unclear yet unlikely that being profitable during the 8-week period impacts your loan forgiveness.
Per IRS Notice 2020-32, the forgivable portion of the loan is non-deductible as it triggers IRS code section 265, which denies the deductibility of any expenses applicable to exempt income. If these forgivable PPP expenses are not deductible, then effectively business owners are paying tax on this loan. Can our guests comment on this?
- The IRS is under a lot of pressure to reconsider their position. The intention was for it to be non-taxable. The Senate just introduced a bill pertaining to this. Stay tuned.
Is it true that all businesses who received the PPP will be audited?
- There has been some discussion about auditing companies with loans over 2m but whether the manpower exists to do this remains in question.
It is my understanding that I don’t have to bring back the same employees I had, just the same total amount of employees. Is that correct?
- It is strictly headcount – does not need to be the same people.
- There is an obligation to let unemployment know if employees decline to return to work.
Can we hire new employees in the middle of the 8-week PPP forgiveness tracking and have their payroll included for forgiveness?
Can we start payroll at the beginning of our payroll cycle, or does it start when we are funded?
- Payroll intended to begin at the start of funding, not an arbitrary date
- May need to run a short payroll at the end to include full 8-weeks
If I bring back an employee at their regular rate (ex. $1000 per week), and if after the 8 weeks, we are still not in business due to the lockdown or the state or CDC not allowing us to do business and we have no income coming in, can I keep the employee on at a reduced rate (say $500 a week) and still receive the forgiveness or do I have to keep it at the regular rate?
- You do not have to keep employee at current rate following the 8-week period to receive forgiveness.
Which insurance premiums are covered for forgiveness?
- Anything related to group healthcare benefits
- Sole proprietor – unclear if healthcare would be included
What does “Transportation” mean as it applies to PPP? It is listed under the deductible utilities.
- No guidance provided but likely related to normal day-to-day work travel.
Should we open a separate account to track PPP funds?
- No, but maintain a separate ledger.
Is there a difference between allowable uses and forgivable expenses?
- The list of expenses eligible for forgiveness is narrower than the list of allowable expenses under the PPP.
- Not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
Do forgivable costs need to be “incurred,” “paid” or both during the eight-week period after the loan is made?
- Intent is to have 8 weeks of expenses forgiven.
- Past due utilities can be paid during 8-week period but no more than 25% can be attributed to non-payroll costs.
To what extent can bonuses be forgiven, or salary if it exceeds the amount included in the 12-month period used to calculate loan amount?
- Bonuses can be paid if earned during that time for salaries up to $100K maximum
- Cannot prepay salary or bonuses
Which rental expenses are included?
- Mortgage and leases signed prior to Feb 15, 2020
- Property/equipment leases (i.e., copier)
- Triple Net, if part of your lease agreement
How do you determine the loan forgiveness amount and what is the ordering rule for calculating the reductions thereon?
- Verify with your lender.
- Quick math: Eligible expenses minus (i) headcount reductions, (ii) wage reductions, (iii) the limit regarding the principal amount of the loan and (iv) the limitation that overhead (i.e., non-payroll) expenses cannot exceed 25% of the loan forgiveness amount = loan forgiveness amount
Are partners in a partnership eligible for loan forgiveness?
- Yes, must apply as a partnership for partners to qualify for loan forgiveness.
How is a full-time equivalent (“FTE”) defined and calculated?
- All the hours worked in a month divided by 30 = FTEs
If you received EIDL money and use it for other expenses that are non-PPP related, do you need to subtract that amount from the PPP amount to be forgiven?
- The EIDL loan is not part of the PPP forgiveness.
About Hal Levenson
Hal Levenson is the Founder and Chief Visionary Officer at Trilogy Partners. Trilogy Partners is an advisory & implementation firm whose mission is to help companies grow and transform. We accomplish this by focusing on 3 critical business areas: Financial, Strategy & People.
DISCLAIMER: Please check with your trusted professionals prior to acting for your business. This Q & A recap should not replace professional services from legal, financial, payroll, HR, insurance, or consulting professionals. If you need a resource in one of these areas, please reach out to Hal Levenson at firstname.lastname@example.org or contact Trilogy Partners at 609-688-0428.
Also, as expressed by the professionals on the call, it is critical that you do a personal examination of the many factors of your business to make the best decision for you and your employees.