DEFERRALS, PPP, EIDL, and GLOBAL ISSUES

Woman Gesturing by Laptop
  • 8/27/2020
  • Virtual

The CLA team discusses the most recent updates around the latest. We take a look at your questions about whether to defer, when to file for forgiveness, what about fraud, and many others! Be sure to email us at livestream@claconnect.com with your questions.

Speakers:

In case you missed it:

 

Questions and Answers:

I would like a better understanding of the new clarification on rent to a related party. Are they saying that we cannot count rent if the related party does not have a mortgage on the dealership building? Surely, I am misreading the guidance.

Unfortunately, the new clarification on related party rent is not very friendly to borrowers, particularly if the related party has no debt. Your understanding is correct, that if there is no debt on the building at the related party the borrower will not get to include any related party rent in the costs eligible for forgiveness.

One question I do have is regarding submitting loan forgiveness documentation to our bank.  One item requested is payroll tax filings, tax form 941.  Our covered payroll period began part way through Q2 and ends before the end of Q3.  I can send the Q2 941 but will not prepare the Q3 041 until after quarter end.  Do you know if we should/need to wait until after the end of Q3 to file our loan forgiveness application so we can include the Q3 941 or what are you recommending that we provide to the bank in place of the Q3 941?

Many payroll companies have reports that substantiate the payroll during your covered period.  Ask them what reports they can run to support your forgiveness.

Has the PPP forgiveness application been finalized yet?

We have a revised application.  Many changes were made as a result of legislative changes.  That said, banks are all in a different spot with opening their portals and accepting forgiveness applications. We recommend contacting them to understand timing of them opening their portals to accept forgiveness.

I may have missed something somewhere along the line.  Is there a deadline for filing your PPP loan forgiveness application?

10 months from the end of the covered period.

Wondering if on the live stream today you could address the home-based business non payroll cost – what I originally understood is that if the rent/utilities/mortgage interest weren’t itemized on the schedule C they would not be considered forgivable.  IS that still accurate or can borrowers request forgiveness on a portion of line 30, expenses for business use of your home?

The guidance in the new IFR provides that only those home-based business expenses that were included on the 2019 tax filings (Schedule C) are eligible for forgiveness. If you did not report any items on Schedule C in 2019, then no amounts will be eligible for forgiveness. See specific example from the IFR below.

Example 4: A borrower works out of his or her home. When determining the amount of non-payroll costs that are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

I am having trouble finding guidance on how to properly book the payroll tax deferrals and how to present on the financial statements.  I would really appreciate any guidance you all could provide.

We have many clients that are booking the payroll deferrals as a liability on the financial statements.  This will allow tracking of the liability.  You could book it as a “FICA tax payable” that will be paid down in future years.

How does a sole proprietor/independent contractor document payments?  We have some that wrote a check to themselves and re-deposited it in the same account for documentation.  A few deposited the funds into their general account upon receipt.  Would that initial deposit constitute their payment?

We believe that is an acceptable approach for independent contractors.

Does the deferral only include the 6.2% of social security tax or does it include the 1.45% of Medicare tax also?

This applies to the 6.2% portion of the social security tax.
Bear in mind there are still many unknowns and pending guidance. We strongly recommend waiting until Treasury issues more guidance.

Do we need to pick 8 or 24 weeks, or can we choose a random number like 15 weeks?

You have to pick 8 or 24 weeks.  There is guidance that allows you to apply if your funds run prior to the 24 weeks lapsing.  However, there is still concerns that if you apply for forgiveness at 15 weeks and the 24 weeks hasn’t run what would happen if you laid off at 20 weeks and/or took actions that would impact forgiveness.

Can you please provide the URL for the loan and grant list?

EIDL Advance Data: https://sba.app.box.com/s/3uzz8bqipjfks8sum95e63qczm43pfs2
EIDL Data: https://sba.app.box.com/s/45qramxy9dkewr6dvnhaz23f8yopytz3 

I heard that rent to a related party could only be deducted up to the amount of the mortgage on the property. What if there is no loan?

If there is no debt no related party rent would be eligible for forgiveness.

What if there is no debt on the property in related party rent?

Unfortunately, there would be no amount allowed for forgiveness.

I see the FAQ clarified guidance for owner/employees of C and S corps. What about LLCs?  We are an LLC with a number of employees with small investments. Are we able to follow the 5% threshold as well?

Unfortunately, this carve out was specific to Corporate structures only.  Partnerships and LLCs were not included.

How are banks handling the PPP loan payment deferral change issue (from 6 months to “not until forgiveness is received or 10 months after the end of the covered period)? I’m leaning toward turning off all of our payment schedules on those loans on our core to ensure we’re not calling anyone past due, waiting and monitoring for forgiveness to be applied for and received, and then officially amending loans with any remaining balances to amortize them over the remaining term.  It borders on performing an amendment without an executed agreement (i.e. by turning off the payment requirements on our core), but I’m struggling with how to handle this in any other way.  Curious if you’ve heard of any other solutions besides getting an amendment signed on all of them now, then touching them again when forgiveness aps come, then touching them yet again with an amendment to amortize any remaining balances.

The approach you outlined is consistent with other PPP lenders I've spoken with.   I'm not aware of any banks asking for signed amendments as an alternative, because of the very reason you mentioned.  I am aware, however, of banks that have chosen to send a "notification letter" to their borrowers as documentation to the borrower that the bank will follow the amended deferral period.  That approach provides documentation to support the change to your core system but doesn't require signatures and avoids multiple amendments.

Does the deferral only include the 6.2% of social security tax or does it include the 1.45% of Medicare tax also?

It’s the 6.2%.

For more information:

  • Heather Kloster
  • Marketing Senior