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PPP Loan Forgiveness: Waiting for Answers

PPP Loan forgivenessJust over a week ago, the Internal Revenue Service (IRS) released an opinion on the deductibility of expenses relating to the forgiveness of Paycheck Protection Program (PPP) loans (IRS Notice 2020-32).  When Congress passed the CARES Act in March establishing the PPP, the legislation stated that any portion of the loans that were forgiven would be non-taxable income for taxpayers.

Many of us speculated that the IRS would follow their statutes and rule that though the forgiven income is non-taxable, the payroll, health and retirement benefits, rent, utilities and interest expense that qualify for the loan forgiveness would be deemed non-deductible. Indeed, this is exactly how the IRS ruled in the notice, stating that, as the expenses would relate to non-taxable income, they would in turn not be deductible.

Along with many taxpayers, several legislators in Congress are very upset about the ruling and feel that it is not in line with their legislative intent. They would like Treasury Secretary Steven Mnuchin to reverse the IRS position. In the alternative, the legislators plan to introduce legislation to mandate these expenses be allowed as tax deductible, as their intent was to make this program very generous. This would also be consistent with the tax treatment of an alternative option in the same law, the employee retention credit.

We will wait and see in the coming months how this plays out. In the meantime, it is expected that within the next week or so, we should be receiving some much-needed guidance from the Small Business Administration (SBA) on numerous PPP loan forgiveness questions. Among them are the following.

  1. Will costs such as payroll only be allowed if paid during the 8-week period after loan funding or will we be able to include payroll paid after the 8-week period that relates to work done during the 8 weeks?
  2. For loans funded after May 6th, will taxpayers be able to extend their 8 weeks beyond June 30th?
  3. Will any restrictions be made on self-rental properties?
  4. How are FTE’s (full time equivalent employees) being calculated?
  5. What exactly does it mean to have your workforce restored by June 30th if they were not restored during the 8-week period in order to get loan forgiveness? How long do they need to stay on the payroll?
  6. Are there any restrictions on hiring and paying family during the 8-week period?
  7. Is interest on non-mortgage debt allowed?
  8. What retirement benefits will be allowed? Do they need to be paid during the 8-week period in order to be forgiven? Will payment of an accrued liability from the prior year qualify for loan forgiveness?

These are just a few of several questions that have been asked with no clear guidance on PPP loan forgiveness. Hopefully, we will have that soon. We continue to recommend that PPP borrowers make a good faith effort in determining cost eligible for forgiveness. 

As new information comes forth, its critical that you work closely with your trusted advisors so you’re able to make the best decisions to position your business to emerge from the pandemic in as healthy a position as possible.

Kevin GilmoreGilmore Jasion Mahler Managing Partner Kevin Gilmore provided this blog. For more information on the impact of the pandemic on your business, we encourage you to visit the GJM COVID-19 Resource Center.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

Protecting Your Business From Disaster

Protect your business from disaster GJMAs small and mid-size businesses around the country and the world work to stabilize in the wake of the deadly COVID-19 pandemic, the economic upheaval caused by the coronavirus crisis brings a wake-up call. Just how prepared was your business for such a devastating event and how would your company or organization fare should disaster strike your technology infrastructure?

Such a “disaster” can cause significant disruption in operational and/or technological process capabilities for a period of time for businesses, which in turn affects the ongoing operations of the company and can, in fact, threaten its very existence. That’s why all organizations should be considering disaster recovery, which involves a set of policies, tools/applications and procedures to help enable the recovery and continuation of critical technology and systems following a disaster.

Some examples of potential disasters:

  • Natural disasters like floods, tornadoes and hurricanes
  • Infrastructure break-down (i.e. utility disruption, pipeline bursts)
  • Human error or threats (i.e. cyber-attacks)

According to global IT services provider phoenixNAP, statistics show about 93% of businesses without a Disaster Recovery (DR) plan in place that suffer from a major data disaster are out of business within one year.

As consumers and business operators, we’ve seen an increase in attacks in which companies are locked out of their systems or data was held for ransom. Such attacks can be costly. On average, businesses lose over $100,000 per ransomware incident due to downtime and recovery costs. As these attacks increase, so should your focus on the importance of data back-up and recovery processes and controls. Without sufficient back-ups and defined processes for recovery, companies run an increased risk of delay or error in financial reporting. phoenixNAP says about 96% of companies with proper backups and Disaster Recovery plans in place were able to survive ransomware attacks.

Disaster recovery can be considered a subset of what is considered “business continuity”. Business continuity involves keeping essential aspects of your business functioning when significant disruptive events occur. Disaster recovery focuses on the IT or technology systems supporting your critical business functions.

What Is a Disaster Recovery Plan?

A Disaster Recovery plan is simply defining the strategy for recovering critical technology resources to ensure the continuation of critical/vital business processes in the event of a disaster. 

As most organizations are very reliant on information technology to conduct business, it’s critical to have a plan in place that can be easily implemented to minimize down-time. This plan defines the key processes for recovering critical technology platforms and telecommunications infrastructure within a specified timeframe. 

Tips for Creating a Disaster Recovery Plan

Identify Your Team

Establishing a Disaster Recovery Team (DRT) is a critical initial step in establishing a DR plan. The DRT should be a cross-functional team consisting of IT leadership and other individuals as needed who are responsible for carrying out the tasks outlined in this plan and providing expertise needed to recover from a disaster. It’s also important to involve key business stakeholders who would be involved in helping manage the downtime and recovery and ensure alignment with overall business continuity.

Create an IT Inventory

Ensuring that the organization has a real-time and up-to-date IT asset inventory listing is important in order to focus on the Recovery Time Objective (RTO) and Recovery Point Objective (RPO) for critical systems/applications. An IT asset inventory lists all key hardware and software (i.e. applications, servers, databases, etc.) and their relationships with one another. RTO is the goal for how quickly to restore technology services after a disruption, based on the acceptable amount of down-time for the specified technology. For example, a recovery time objective of 48 hours with local accessibility for payroll services means that the payroll application must be up and running within 48 hours as well as locally accessible. RPO is the goal for the point at which to restore data or information after a disruption, based on the acceptable amount of data or information loss. For example, an RPO of four hours for your financial reporting application means that the application data must be backed-up every four hours so that no more than four hours of data entered into the application is lost after a disruption.

Get Your Plan in Writing

Creating and documenting a plan involving these objectives is key to building out a realistic DR plan. Your organization will likely find during this process that there will be gaps between the current IT infrastructure and the determined recovery objectives. That said, it’s critical for your organization to work through these to ensure that the plan can be carried out as needed for the fluid continuity of the business.

What Else to Consider

Other important items to keep in mind when creating a DR Plan include:

  • Determining channels for communicating disasters and next steps to your employees
  • Obtaining stakeholder buy-in on the plan and its execution in order to ensure that the plan can be followed through on if necessary
  • Testing and practicing your plan to help you find and correct issues, as well as enable more accurate and efficient execution 

With these simple actions, you’re on your way to having a plan. COVID-19 reminded us all that catastrophic events do happen. The businesses with a Disaster Recovery plan in place are likely to be the ones to weather IT outages. Now’s the time to pull together your team and establish your plan so should disaster strike, you’ll be ready.

If you have questions creating or cleaning up your DR plan, Gilmore Jasion Mahler’s (GJM) Risk Consulting Team can help guide your business in building out that plan, determining the gaps and testing your DR plan. To start the conversation, reach out to Director Matt Hoverman at mhoverman@gjmltd.com, Manager Tim Schloz at tschloz@gjmltd.com, or Senior Associate Reid Mankowski at rmankowski@gjmltd.com.

Reid Mankowski GJM Disaster Recovery PlanGJM Senior Associate Reid Mankowski contributed this blog. Reid joined the GJM Risk Consulting Team in 2019. Reid has significant experience in testing and leading IT general control and business process SOX testing for large and medium size companies, primarily in the manufacturing industry.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estatehealthcaremanufacturing & distribution and utilities.

GJM’s Bob Bobek Offers Tips on Applying for Paycheck Protection Progam

If your business hasn’t yet applied through the Small Business Administration’s (SBA) Paycheck Protection Program, you’ll likely be doing so soon. Here are 6 recommendations on the application process from GJM Partner Bob Bobek. Bob has helped many businesses apply for the program in recent days and recommends you keep these tips in mind:

  1. Sit down with a trusted advisor and make sure that the Paycheck Protection Program is right for you. There are other programs that may be a better fit for your business.
  2. Use a loan calculator. GJM has created a simple calculator for our clients to plug in their numbers and know for sure which program is best for them. Check with your advisor to see if they have a similar tool or reach out to GJM for assistance.
  3. Prepare. Make sure you have support for all items included in your loan application (Last year’s tax return, payroll data, etc.).
  4. Maximize your loan draw. Make sure you’re getting the most benefit possible for your business.
  5. Talk to your banker to make sure you understand exactly what they need and how they would like to see it. Keep in mind the banks are all trying to figure this out, too. Some banks may ask for items that other banks aren’t asking for. Each has its own application process. Most banks are processing more applications for these PPP loans than the total number of loans they process in a given year. 
  6. Follow through. Now that you have your application submitted, start a dialogue. Find out how the loan will be processed, what loan documents will you need to sign and when you can expect to receive funds. Remember, once you receive your funds, the 8-week forgiveness period will begin. Its critical to keep communication open with your bank and your advisors. 

You can access information on the Paycheck Protection Program and many other resources designed to help your business navigate the pandemic in the GJM COVID-19 Resource Center.

Bob Bobek is an assurance partner with over 35 years of public accounting experience who works with privately-owned companies across multiple industries, with a concentration in construction and manufacturing.

 

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

Coronavirus Aid Relief and Economic Security (CARES) Act Explained

CARES Act ExplainedA giant stimulus package has been signed into law by the President. The Coronavirus Aid Relief and Economic Security (CARES) Act brings a $2 Trillion dollar shot in the arm to the American economy, reeling from the devastating impact of the COVID-19 (coronavirus) pandemic sweeping the globe.   

The CARES Act contains various broad-reaching provisions, including direct payments to Americans, expansion of the unemployment insurance program and various other provisions to provide much-needed liquidity to our economy. While GJM will be providing future information on many aspects of this act, we feel it’s important to share some key elements of the legislation as it existed once it passed in the U.S. Senate.

SBA Loan Program

Under this Act and as part of Keeping American Workers Paid and Employed Division A, the Small Business Administration (SBA) will administer a modified SBA 7(a) forgivable loan program to fund loans to Companies to keep their employees in lieu of massive layoffs and other working capital needs. This program is called the Paycheck Protection Program. In the Senate Bill any qualified SBA 7(a) lender may elect to participate in this program. Our basic understanding of the bill that was passed by the Senate is as follows:

  • A borrower can get an SBA 7(a) forgivable loan or a direct SBA disaster loan, but not both.
  • Increased eligibility for certain small businesses that employ less than 500 employees per physical location of the business.
  • Loans can be no more than $10,000,000 calculated on a formula of the average monthly payroll costs times 2.5.
  • The loans will have a maximum maturity of 10 years.
  • Allowable uses of the loan are to fund a Company’s payroll costs, group health insurance, interest on mortgage payments, rent, utilities and interest on other debt obligations incurred before the covered period.
  • Good faith certification from the eligible recipient that the uncertainty of the economic conditions make the loan request necessary to support the ongoing operations of the recipient, acknowledge that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments.
  • SBA will waive the guarantee fee required for a 7A loan.
  • SBA will eliminate the requirement that a small business concern is unable to obtain credit elsewhere.
  • Provide a process to allow borrowers to be eligible for loan forgiveness in amount equal to their payroll costs, health benefits, retirement benefits, interest portion of mortgage payments, rent and utility costs for the eight-week period immediately following when the loan proceeds are received. The amount of the debt forgiveness will be reduced proportionally by the number of employees laid off during this time.
  • Any amount forgiven that would normally be included in gross income shall be excluded from gross income.

It’s important to remember that the final legislation isn’t in place. The law may change upon Congress’s process of passing the final law, but many financial intuitions are preparing themselves to accept your applications.  It is our understanding that the application process will be streamlined and that the intentions are to fund these loans as quickly as possible.

Here are some other key provisions in the CARES Act:

Employee Retention Credit:

The CARES Act establishes an employee retention credit for businesses that have been forced to shutdown by the COVID-19 pandemic.  

  • Eligible employers closed or partially closed during the coronavirus pandemic can take a credit against payroll taxes equal to 50% of qualified wages up to $10,000 in wages and health benefits for each employee
  • Credit allowed against employer FICA taxes
  • Employers with greater than 100 employees
    • Qualifying wage amounts between March 12, 2020 and before December 31, 2020 when not able to provide services due to closed or partially closed business
  • Employers with less than 100 employees
    • All wages paid between March 12, 2020 and before December 31, 2020 qualify for credit
  • If taking loans under SBA 7(a) program, retention credit is not allowable

Retirement Plans impact:

The act provides taxpayers a break on penalties for early distributions from retirement plans related to the pandemic.  

  • Take up to $100,000 in distributions from plans for pandemic-related distributions without 10% penalty for early distribution
  • Bill allows distribution income to be taxed over three years or repaid back to the plan over three years with no taxation
  • Suspends RMD (required minimum distributions) for 2020

Payroll Tax Delay:

  • Delays payment of 2020 employer payroll taxes (the 6.2% portion) with 50% due December 31, 2021 and the remainder due December 31, 2022
  • Same delayed payment schedule for self-employment taxes
  • If taking loans under SBA 7(a) program, payroll tax delay is not allowable

Net Operating Losses (NOLs):

  •  2018, 2019 and 2020 net operating losses can elect a five-year carryback

Interest Limitation

  • Sec. 163(j) changes to adjusted taxable income percentage from 30% to 50%.  Eligible for 2019 and 2020 taxes.

Corporate Alternative Minimum Tax (AMT):

  •  The bill allows for refundable credit for 2018 tax year.

 Qualified Improvement Property

  • Technical corrections for previous tax reform bill that now allows for depreciation to be taken over 15 years for qualified improvement property instead of 39 years.

Individual Rebates

  • Individuals will receive a tax credit of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child.
  • The credit is phased out for taxpayers with adjusted gross income (AGI) above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals.

We are here…

Gilmore Jasion Mahler professionals are reviewing the law and having discussions with clients about the impact. If you have yet to connect with your GJM team, now is the time to do so and ensure you’re protecting your business and your employees as much as possible from the financial fallout associated with the pandemic. We have also created a GJM COVID-19 Resource Center where you can find updates and links as your business navigates the pandemic.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business advisory, tax, risk advisory, healthcare management and outsourced accounting. The Firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.

GJM COVID-19 Update & Resources

GJM COVID-19 Update and ResourcesAs our country faces the COVID-19 crisis we want to take a moment to bring you up to date on some of the steps Gilmore Jasion Mahler is taking as a result. We would also like to share some information on some resources for businesses, should you need them.

Ohio Governor Mike DeWine has announced a loan program to provide economic assistance to companies due to the slowing down of business in Ohio. It may be available to help your business provide funding for payroll, past due accounts payable and other working capital needs. Typically, such a loan program will have a very low interest rate and up to 30 years repayment schedule. Also, in the unfortunate event that furloughs or layoffs are necessary during these challenging times, impacted employees should qualify for immediate unemployment compensation relief.

Here are some helpful links for businesses seeking information in both Ohio and Michigan.

http://jfs.ohio.gov/ouio/CoronavirusAndUI.stm

https://www.sba.gov/page/guidance-businesses-employers-plan-respond-coronavirus-disease-2019-covid-19

https://www.michigan.gov/coronavirus/0,9753,7-406-98178_98179---,00.html

While there has been talk of the IRS possibly moving back the April 15 tax deadline, as of now there is no official word on if that may happen so GJM is currently working under the assumption there is no delay in the tax deadline. We expect to receive further guidance from the US Department of the Treasury this week and will promptly let everyone know.

As we are writing this, our offices remain open, though we have encouraged our staff to work from home if possible for the next three weeks. Should you need to drop off tax documents, GJM offices will be open during our normal business hours for you to do so.

We will continue to monitor COVID-19 developments here in Northwest Ohio and around the nation and share further information with our clients and partners as needed. Please feel free to reach out to your GJM team with any questions or concerns.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting services and provides comprehensive services including assurance, business advisory, tax, risk advisory and healthcare management. The firm's professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution and utilities.