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Funding of 401(k) using PPP loan


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It's reasonable to explicitly follow the instructions on any form that is submitted to any government agency.  The instructions right now don't limit the amount of contribution.  But the instructions might change, the client needs to understand this.  We don't write the instructions.  Yes I agree that if there is any question about when/whether or not to make a contribution it is best to wait until close to the end of the PPP period.  

I carry stuff uphill for others who get all the glory.

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2 minutes ago, shERPA said:

Yes I agree that if there is any question about when/whether or not to make a contribution it is best to wait until close to the end of the PPP period.  

For a minute there I thought I was losing my mind :).

Austin Powers, CPA, QPA, ERPA

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4 hours ago, austin3515 said:

I guess I can;t understand why the advice isn't make the decision closer to the end of the 8 week period when maybe there will be guidance in favor or against.  That's the advice I'm giving and you'll have a tough time convincing me I'm doing anyone a disservice.  I don't see the advantage of a different approach. 

We are in 100% agreement. My speech includes "wait until we are six weeks into your 8 weeks and let's see if we get any additional guidance.  And if we don't have any, you will have to make the decision about pulling the trigger or not."  And if you go back and re-read my postings in THIS THREAD, you will find that I said exactly that.  Did you miss that?

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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1 hour ago, austin3515 said:

Wow it took  a long time figure out we agreed :).

Only because you disagreed with me even after I had already noted my "6 of 8 week" rule, which it appears is the crux of the disagreement!  

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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  • 2 weeks later...
8 hours ago, John Feldt ERPA CPC QPA said:

FYI, Derrin is not convinced that they are tying the definition of owner-employee to IRC 401(c)(3).

Even my good friend and partner has been wrong once or twice in his life.  I believe he is wrong again on this issue.  I sent him notes to tell him we are in 180 degrees opposite positions.  If they wanted to say owners of C and S corps, they would have said it. It is just that simple.  Everything they are talking about are folks who file Schedule SEs.  Of course, I could be wrong, but I don't think so!

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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If I recall the point he made it, it was that all of those Earned Income Rules were intended to equalize the playing field as much as possible and treat them the same.  And it seemed contrary to that objective to treat them so very differently for purposes of PPP.  It is hard to imagine that Congress intended to treat partners different then S-Corp owners in terms of their eligibility for PPP.  But I've said all along, we need a damn FAQ to settle this once in for all.  It makes no difference what Larry or Derrin says.  We need the IRS guidance.

But anyway, who has the low down on when this will be obsoleted by the extension to 24 weeks?  IT seems to have stalled after passing in the House?

Austin Powers, CPA, QPA, ERPA

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Well, I thought the rationale was that all of these businesses that needed the help the most will have nothing forgiven because they couldn't reopen until recently.  Meanwhile all of the businesses that were not affected "at all" and stayed open have no problem getting their debt forgiven.  That's not a partisan issue at all.  PPP was totally bipartisan, so if the "rich" get their debt forgiven while the decimated get screwed, everyone will pay the price. Democrats and Republicans. Strike that -  the Dems did their part in the House I guess.  

Would be silly if none of the restaurants got any help, or the dentists, etc.  I lean to the left, but does that sound like a "liberal" statement?  It just sounds like common sense to me.

OK I'm getting off my soap box now.

Austin Powers, CPA, QPA, ERPA

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I was not (and won't on these boards, not the place for it) opining on right or wrong. Merely observing that since we have a bitterly divided House and Senate controlled by different parties, not to mention the Executive branch issues, that for ANY legislation to pass it must, by definition, be bipartisan. And the spirit of cooperation ain't strong.

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39 minutes ago, RatherBeGolfing said:

They could (and should) have paid their employees while they were closed.

Be that as it may, let's say you own a restaurant.  You can either pay people to do nothing, and get Uncle Sam to pay for it, which nets you nothing.  Or just let them collect unemployment. 

Compare that with say an accounting firm that a) paid its employees; b) profited from the services rendered; and c) got said payroll expense which generated revenue for them, paid for by Uncle Sam.

Now call me crazy, but that ain't fair.

Austin Powers, CPA, QPA, ERPA

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32 minutes ago, austin3515 said:

Be that as it may, let's say you own a restaurant.  You can either pay people to do nothing, and get Uncle Sam to pay for it, which nets you nothing.  Or just let them collect unemployment. 

Compare that with say an accounting firm that a) paid its employees; b) profited from the services rendered; and c) got said payroll expense which generated revenue for them, paid for by Uncle Sam.

Now call me crazy, but that ain't fair.

It was never about fairness though.  Different circumstances yield different outcomes.  I wish it could have been more restrictive to prevent employers from just getting a windfall.  At the same time, the employers did assume some risk since there were so many unknowns.  Could it have been restricted to help only those who fit a narrow set of circumstances?  Sure, but we would still be reviewing applications from March.  

My point is that if they miss out on forgiveness because they sat on the cash hoping to spend it when they opened up again, thats on them.  The loan part made cash available for employers.  While the forgiveness part has not been clear, we have known for months that if you don't spend on payroll, even if you paying your employees to pick their bellybutton and watch Netflix, you will lose out on forgiveness.  It was up to the employer to decide what was more important, the loan or the forgiveness.

 

 

 

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8 minutes ago, RatherBeGolfing said:

It was never about fairness though.

Well if it wasn;t then I guess they accomplished their objective.  

11 minutes ago, RatherBeGolfing said:

While the forgiveness part has not been clear, we have known for months that if you don't spend on payroll, even if you paying your employees to pick their bellybutton and watch Netflix, you will lose out on forgiveness

That is understood but to what advantage?  Wouldn't it make more sense for said restaurant owner to hang on to the money and use it to finance operations when they re-open?  The answer is yes it would because there is NO reward for them to pay the NetFlix watcher.

Anyway I feel like I heard there was a development today so maybe they will fix this.  And by the way what I have described above is why they are talking about extending the window.  So I guess I must be onto something.

Austin Powers, CPA, QPA, ERPA

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1 hour ago, austin3515 said:

That is understood but to what advantage?  Wouldn't it make more sense for said restaurant owner to hang on to the money and use it to finance operations when they re-open?  The answer is yes it would because there is NO reward for them to pay the NetFlix watcher.

Sure, but I think Congress's goal here was to stimulate the economy more broadly. If people are getting paid to sit home and watch NetFlix, they've got more money available to spend on consumer goods and services, even if the pool of places they can actually buy those goods and services has shrunk because those employers are also paying their workers to sit home and watch NetFlix.

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26 minutes ago, austin3515 said:

Anyway I feel like I heard there was a development today so maybe they will fix this.

Yep HR 7010 passed Senate. 

If you want to talk fairness, why should taxpayers pay for an employer to sit on free cash while the employees cant pay their bills?  I get the argument, but the forgiveness part wasn't intended to just benefit the employer.  It was meant to keep paychecks flowing while the country was shutting down in a panic.  The 8 weeks was too narrow, there is no doubt about that.  Especially since the first wave of PPP loans was essentially over by the time we had some decent guidance.  But even businesses that did keep payroll going had a hard time spending the bulk on payroll, so an extended window makes sense.  

Dont get me wrong, I dont oppose the fixes and extensions in the bill.  I just dont care for the argument that an employer couldn't spend it on payroll while they were closed, when the intent was never to let employers sit on Payroll Protection cash until they could get a windfall from it. 

 

 

 

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9 hours ago, austin3515 said:

If I recall the point he made it, it was that all of those Earned Income Rules were intended to equalize the playing field as much as possible and treat them the same.  And it seemed contrary to that objective to treat them so very differently for purposes of PPP.  It is hard to imagine that Congress intended to treat partners different then S-Corp owners in terms of their eligibility for PPP.  But I've said all along, we need a damn FAQ to settle this once in for all.  It makes no difference what Larry or Derrin says.  We need the IRS guidance.

But anyway, who has the low down on when this will be obsoleted by the extension to 24 weeks?  IT seems to have stalled after passing in the House?

FWIW: it didn't stall.  The house passed it last week and the Senate was out of session. They came back late Monday and this was not on the agenda until Wed, at which time the Senate passes the house version as you now know.  We actually predicted that it would be signed by the President on Thursday and I think that is when he is signing it.  

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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