Partnerships Can Not Use Gross Income For PPP Loans

  • Agribusiness
  • 3/14/2021
CasualBusinessmanListeningtoCollegue

The SBA issued two new Q&As on gross income for PPP loans. The guidance is clear that almost all partnerships may not use gross income to obtain a PPP loan.

The SBA has finally issued a formal updated Q&A regarding gross income for sole proprietors and partnerships.  In a March 12, 2021 release, they specify that only Schedule F’s filed on Form 1040 will qualify to use the gross income on either Schedule C or F. Here is the wording from Q. #17

17. Question: If I report farm or ranch income as an LLC, qualified joint venture, or partnership, may I use gross income to determine loan amount?

Answer: Only self-employed farmers and ranchers who file an IRS Form 1040 Schedule F with their Form 1040 and report Schedule F farm income on IRS Form 1040 Schedule 1 may use gross income to determine the loan amount. Single member LLCs and qualified joint ventures, as defined by IRS,13 that file Schedule F with their Form
1040 may use gross income to determine their loan amount. Only one spouse in a qualified joint venture may submit a PPP loan application on behalf of the qualified joint venture.

Partnerships and partners must calculate loan amounts as directed in Question 4 above.

Partnerships determine their PPP loan size based on net income as outlined in their Question 4 that was released much earlier.  Note that there is one “technical” partnership that may use gross income and that is a qualified joint venture that meets the following requirements:

  1. The only members of the joint venture are married couple who file a joint return and each file a Schedule C or F with their Form 1040,
  2. Both spouses materially participate in the trade or business, and
  3. Both spouses elect not to be taxed as a partnership.

For those partnerships who have already received a PPP loan based on gross income, be warned that the bank may not allow forgiveness even if your total loan size is under $150,000.  They may set up a screen to determine any partnership borrowers who received a loan based on gross income and automatically adjust the forgiveness for the difference between gross income and net income.

Also, a Schedule C and Schedule F can be combined into one PPP loan based on their total gross income (limited to $100,000).  Here is the Q & A # 18 on that:

18. Question: If I am a self-employed individual who is eligible to use gross income from both Schedule C and Schedule F to calculate loan amount, how do I calculate loan amount?

Answer: Calculate your maximum loan amount by following the relevant guidance for calculating maximum loan amount for self-employed individuals (either with or without employees) using gross income from Schedule C and separately for using gross income from Schedule F. Add the two results together to calculate your maximum loan amount.

In the applicable Box A on SBA Form 2483-C, include amounts from both Schedule C and Schedule F.

We have waited several weeks to get guidance on this subject.  It may not be the guidance that many farmers or other small businesses wanted, but at least we have some clarity on this subject.

 

 

This blog contains general information and does not constitute the rendering of legal, accounting, investment, tax, or other professional services. Consult with your advisors regarding the applicability of this content to your specific circumstances.

Experience the CLA Promise


Subscribe