The PPP Thread

[docnews]

Email I received: Thank you for submitting your application for the Paycheck Protection Program loan through PayPal. Additional program funding allocated by the US Government for the Paycheck Protection Program became available on Monday, April 27. However, the SBA is limiting the number of applications that each provider can process through the SBA to only a few hundred per hour. Your application is complete and is in line to be processed through the SBA as soon as we are able. Given the SBA application processing volume controls, we anticipate that it will take several days for us to process completed applications through the SBA and to receive the required SBA loan numbers in order to proceed with funding. We will communicate updates through email. Our contact centers do not have access to the status of your loan, so they will be unable to provide any updates if you call. Sincerely, The PayPal Paycheck Protection Program Loan Team

The lender for the Paycheck Protection Program Loan through PayPal is WebBank, Member FDIC

[docnews]

My underwriting was finished on April 22. Not sure I'll get funded.

[jacoavlu]

SBA trying to slow things down with this round of PPP funding. System obviously crashed Mon AM as soon as they opened the gates.

they've closed the doors to loans submitted by RPA (robotic process automation) https://www.journalofaccountancy.com/news/2020/apr/sba-treasury-ban-use-of-rpa-to-submit-ppp-loans.html

and created a window when they'll only accept loans from smaller banks https://www.journalofaccountancy.com...il-29-4pm.html

AICPA is continuing to work with SBA to optimize things towards forgiveness https://www.aicpa.org/content/dam/ai...ons-letter.pdf

though this push changes things somewhat. The initial thought behind PPP was that the shutdown would be shorter, hence the 8 week window, keep employees through then, pay with PPP funds, start up again

now AICPA wants forgiveness period to begin once states open things up. Which means a biz could furlough people and not pay them, bring them back later and still get PPP forgiven

[jacoavlu]

https://www.irs.gov/pub/irs-drop/n-20-32.pdf

IRS has issued guidance that expenses paid with PPP funds that are forgiven are not deductible.

so if practice took $150k loan and paid $150k wages, and entire loan is forgiven, that wage expense is no longer deductible.

Meaning the loan is basically taxable income. I think.

[Tim]

https://www.irs.gov/pub/irs-drop/n-20-32.pdf

IRS has issued guidance that expenses paid with PPP funds that are forgiven are not deductible.

so if practice took $150k loan and paid $150k wages, and entire loan is forgiven, that wage expense is no longer deductible.

Meaning the loan is basically taxable income. I think.

Where this sucks the worst is if the business ran as a loss: revenue of $100 , $150k non-deductible,
still owe taxes on $100 and your out of pocket $50k already. A lot of the small businesses are going to breakeven struggling. This is a big big deal.

[Cubicle]

Whoa... this is a big eye opener. Thank you jacoavlu for posting this. I can see the IRS's rationale for this. I don't think anyone anticipated this though. I definitely didn't.

Self employed no employees... if I use 100% of the PPP funds to pay myself, am I increasing my tax burden in any way? I can't think so. I won't use the PPP funds to pay my Schedule C expenses. Paying myself has never been deductible.

Oh wait... Would I run into issues deducting the SE taxes if I use PPP money to pay myself?

[Tim]

Whoa... this is a big eye opener. Thank you jacoavlu for posting this. I can see the IRS's rationale for this. I don't think anyone anticipated this though. I definitely didn't.

Self employed no employees... if I use 100% of the PPP funds to pay myself, am I increasing my tax burden in any way? I can't think so. I won't use the PPP funds to pay my Schedule C expenses. Paying myself has never been deductible.

Oh wait... Would I run into issues deducting the SE taxes if I use PPP money to pay myself?

Or would you even qualify for loan forgiveness?

https://tenor.com/view/stop-dont-go-there-just-stop-it-jim_ross-stop-dont_go_there-gif-10869487

[White.Beard.Doc]

No surprises here with the tax situation....

If you don’t count the loan forgiveness as income, you cannot count the expenses paid as deductible expenses. It’s basically a wash.
And to say it more simply, the loan money that is forgiven is regular practice revenue, and the expenses paid are regular deductions. Or to say the same thing in a different way, if you don’t count the loan forgiveness as income, you cannot count the expenses you pay with it as deductible expenses. Profits, including profits stemming from loan forgiveness, will create taxable income.

[White.Beard.Doc]

Oh, and at 3 am last night, we received confirmation of PPP funding for our group. This will help cover the losses in certain areas, and the extra expenses of caring for the crush of Covid patients in other areas.

[Tim]

Oh, and at 3 am last night, we received confirmation of PPP funding for our group. This will help cover the losses in certain areas, and the extra expenses of caring for the crush of Covid patients in other areas.

Partiality cover. What was the marginal tax rate on these funds? Rhetorical question. From a cost of capital analysis, which rate is better?
•Interest rate
•Marginal tax rate
Just going down a rabbit hole. Get me out! A little disoriented here.

[jacoavlu]

the AICPA is pushing back re the disallowance or otherwise deductible expenses as a result of PPP loan forgiveness

https://www.journalofaccountancy.com...n-program.html

The CARES Act itself does not address whether deductions otherwise allowable under the Code for payments of eligible Section 1106 expenses by a recipient of a covered loan are allowed if the covered loan is subsequently forgiven as a result of the payment of those expenses.


The AICPA believes strongly that the IRS’s interpretation denying deductions of expenses forgiven under the PPP program is contrary to Congress’s intent. Chris Hesse, CPA, chair of the AICPA Tax Executive Committee, said: “In effect, the IRS guidance means that the taxability provision [Section 1106(i)] has no meaning. Why waste the ink to say that for purposes of the Code, the loan forgiveness is not includible in income, if the government will just take away deductions in the same amount?”


Because it believes the intent of the CARES Act was to allow businesses to deduct all of their ordinary and necessary expenses — including any expenses used in determining PPP covered costs — the AICPA plans to seek legislative clarification. “We’re hopeful that we’ll see movement on the legislative front early next week,” according to Edward Karl, CPA, AICPA vice president–Tax Policy & Advocacy.

[Tim]

jacoavlu
Fantastic work referencing many of the details of the PPP program and updates. Standup and take a bow!

[Kamban]

the AICPA is pushing back re the disallowance or otherwise deductible expenses as a result of PPP loan forgiveness


The AICPA believes strongly that the IRS’s interpretation denying deductions of expenses forgiven under the PPP program is contrary to Congress’s intent. Chris Hesse, CPA, chair of the AICPA Tax Executive Committee, said: “In effect, the IRS guidance means that the taxability provision [Section 1106(i)] has no meaning. Why waste the ink to say that for purposes of the Code, the loan forgiveness is not includible in income, if the government will just take away deductions in the same amount?”

I am not sure I understand this movement by the AIC{A

Say you got 30K to cover 8 weeks of payroll and 5K for rent. Your 35K loan is forgiven. But it is an income for you and the payroll and rent are expenses and your liability should be zero. Am I interpreting it right.

Now while the office is open you make a 35K income from seeing patients. Normally that would have gone towards payroll and rent but since you have the PPP money forgiven, that is counted as taxable income, right? Does AICPA believe that should also be non taxable.

I strongly believe that if you have furloughed employees who have not applied and gotten unemployment money during the period of the loan, that payroll should not be forgiven even if you hire them later. What is the incentive to keep employees on payroll then if everyone gets forgiveness?

[Tim]

I am not sure I understand this movement by the AIC{A

Say you got 30K to cover 8 weeks of payroll and 5K for rent. Your 35K loan is forgiven. But it is an income for you and the payroll and rent are expenses and your liability should be zero. Am I interpreting it right.

Now while the office is open you make a 35K income from seeing patients. Normally that would have gone towards payroll and rent but since you have the PPP money forgiven, that is counted as taxable income, right? Does AICPA believe that should also be non taxable.

I strongly believe that if you have furloughed employees who have not applied and gotten unemployment money during the period of the loan, that payroll should not be forgiven even if you hire them later. What is the incentive to keep employees on payroll then if everyone gets forgiveness?

You keep them on. payroll, you make $35k anytime during the year, presto: $35k of no deductible expense. Taxable income of $35k.
Net profit zero, pay tax on the $35k.

Typically, loan forgiveness would be taxed . You would owe tax on the forgiveness and deduct the expenses. Same effect on taxes owed if the forgiveness was taxed.

[jhwkr542]

I am not sure I understand this movement by the AIC{A

Say you got 30K to cover 8 weeks of payroll and 5K for rent. Your 35K loan is forgiven. But it is an income for you and the payroll and rent are expenses and your liability should be zero. Am I interpreting it right.

Now while the office is open you make a 35K income from seeing patients. Normally that would have gone towards payroll and rent but since you have the PPP money forgiven, that is counted as taxable income, right? Does AICPA believe that should also be non taxable.

I strongly believe that if you have furloughed employees who have not applied and gotten unemployment money during the period of the loan, that payroll should not be forgiven even if you hire them later. What is the incentive to keep employees on payroll then if everyone gets forgiveness?

It should be non taxable because the bill literally states the forgiven portion is not taxed. But since the irs came out and said this, they basically made it taxable income. The incentive to keep employees on payroll is because forgiveness is based on the amount you spent on payroll and the number of employees you keep.