There is a distinction between Gross Income and Gross Receipts and we review how that affects farmers and PPP loans
In our previous post on PPP loans for Schedule F farmers we used the words gross receipts and gross income on purpose. If a self-employed farmer showed a net loss on their 2019 Schedule F but their “gross income” was greater than $100,000, then that farmer is allowed to increase their First PPP loan up to the maximum $20,833.
We also think that any farmer who did not apply for a loan since they showed a loss on their Schedule F and did not have any employees should be able to apply for a loan. This is based on a reading of the new First Round PPP loan application.
Once the farmer received either a new First Round PPP loan or an increased First Round PPP loan based on “gross income”, they can apply for a Second Round PPP loan if and only if they had at least one quarter in 2020 where “gross receipts” is at least 25% less than the same quarter in 2019. However, a farmer is required to “spend” the funds before they can apply for a new loan which in the case of a Schedule F farmer means they should write a check to themselves for the loan amount (assuming they have no employees).
Now what is gross income and what is gross receipts? First, gross income is simply the amount reported on line 9 of Schedule F. This includes all of the income the self-employed farmer received and reported on Schedule F. It does not include any gains from trading or selling farm assets.
Gross receipts would start with gross income, then make the following adjustments:
- It would add back the cost of goods sold deduction on line 1(b) of the Schedule F, and
- Would include other income such as the sales price reported on Form 4797 from trading or selling farm assets (not reduced for adjusted tax basis or cost).
Also, gross receipts may need to be aggregated if farmers have more than one entity that they control. The 25% reduction in gross receipts is based upon all aggregated gross receipts not just one entity’s gross receipts.
Example – Assume Ben, a Schedule F farmer also has an income tax preparation business reported on Schedule C. His Schedule F had at least one quarter where gross receipts were at least 25% lower, however, when combined with his Schedule C tax preparation business, he had no quarter where gross receipts declined by at least 25%. He is unable to apply for a Second PPP loan.
Self-employed partners do not appear to qualify for the gross income adjustment. This change is only for Schedule F farmers.
Finally, the restriction against allowing PPP loans for payroll related to commodity wages may be correct. We have had certain discussions with parties involved in this area and SBA and Congress may have intended only Medicare wages qualifies for a PPP loan. If a farmer received a PPP loan the first time based on commodity wages, they may be required to pay back that portion of the loan.