PPP Validation?

[AmyETPA]

For small sized TPAs, what kind of backup material, if any, are you keeping on file to support your PPP need for the loan application?  Ours was approved but we are wanting to be sure that we are able to prove that it was needed.

[Larry Starr]

4 hours ago, AmyETPA said:

For small sized TPAs, what kind of backup material, if any, are you keeping on file to support your PPP need for the loan application?  Ours was approved but we are wanting to be sure that we are able to prove that it was needed.

You're not going to have to prove that it's needed.  You're going to have to prove that, for forgiveness, you have spent the funds as provided in the rules.  If you don't spend them that way, you owe the money back (2 year loan at 1% interest: gimme as much of that as I can get!!!).  Your bank will tell you what proof they will be requiring to offer you the forgiveness that is potentially available to you.

[shERPA]

Be sure to check out IRS Notice 2020-32.  IRS says a company can not deduct the expenses it pays with the forgiven amount of the loan. So even though the act itself says the forgiven amount is not taxable income, by disallowing a deduction for the expenses paid with the forgiven amount, economically it comes out the same as if it were taxed as loan forgiveness.  

[Mike Preston]

3 hours ago, shERPA said:

Be sure to check out IRS Notice 2020-32.  IRS says a company can not deduct the expenses it pays with the forgiven amount of the loan. So even though the act itself says the forgiven amount is not taxable income, by disallowing a deduction for the expenses paid with the forgiven amount, economically it comes out the same as if it were taxed as loan forgiveness.  

Not quite.  I think there is a presumption that some part of the income a business generates will be reduced.  If the income doesn't go down, then economically it comes out the same as if it were taxed as loan forgiveness.

[shERPA]

8 hours ago, Mike Preston said:

Not quite.  I think there is a presumption that some part of the income a business generates will be reduced.  If the income doesn't go down, then economically it comes out the same as if it were taxed as loan forgiveness.

Well yes, if you introduce other variables, the outcome is different. 

[Larry Starr]

19 hours ago, shERPA said:

Be sure to check out IRS Notice 2020-32.  IRS says a company can not deduct the expenses it pays with the forgiven amount of the loan. So even though the act itself says the forgiven amount is not taxable income, by disallowing a deduction for the expenses paid with the forgiven amount, economically it comes out the same as if it were taxed as loan forgiveness.  

I'll bet anyone a dollar that this will not hold.  Here's why:

IRS is saying that you can't deduct your expenses that are paid with tax free PPP money.

There is just no way the prohibition on deducting expenses paid with PPP money can stand.  Congressional action or regulatory revision is needed.

 

Here's the example of the math (for the simpletons in Congress to easily understand what this position means):

 

I have a C corporation; we received $30,000 PPP money.  We used it for permissible items and are eligible for 100% forgiveness.

 

At the end of the year, our profit is $50,000 assuming normal deduction of expenses.  

 

If we can't deduct the expenses that were paid with the $30,000, our profit goes up to $80,000, which effectively makes the PPP money TAXABLE, even though Congress says it is not. 

 

This is an end run around Congressional intent, and it will not stand.

 

[shERPA]

6 minutes ago, Larry Starr said:

I'll bet anyone a dollar that this will not hold.  Here's why:

IRS is saying that you can't deduct your expenses that are paid with tax free PPP money.

There is just no way the prohibition on deducting expenses paid with PPP money can stand.  Congressional action or regulatory revision is needed.

 

Here's the example of the math (for the simpletons in Congress to easily understand what this position means):

 

I have a C corporation; we received $30,000 PPP money.  We used it for permissible items and are eligible for 100% forgiveness.

 

At the end of the year, our profit is $50,000 assuming normal deduction of expenses.  

 

If we can't deduct the expenses that were paid with the $30,000, our profit goes up to $80,000, which effectively makes the PPP money TAXABLE, even though Congress says it is not. 

 

This is an end run around Congressional intent, and it will not stand.

 

Yes, it does defeat the explicit provision in the law that the PPP forgiveness is not income, unlike other debt forgiveness.  And I think Grassley was quoted in today's WSJ article saying exactly this.  Although it's not really a surprise that there are glitches in a hastily drafted piece of legislation.  

So Congress may or may not act to fix it, we will see.  Could end up being cannon fodder for other political agendas.

As Frank Zappa said:  "The United States is a nation of laws, badly written and randomly enforced."

 

 

[Larry Starr]

15 minutes ago, shERPA said:

Yes, it does defeat the explicit provision in the law that the PPP forgiveness is not income, unlike other debt forgiveness.  And I think Grassley was quoted in today's WSJ article saying exactly this.  Although it's not really a surprise that there are glitches in a hastily drafted piece of legislation.  

So Congress may or may not act to fix it, we will see.  Could end up being cannon fodder for other political agendas.

As Frank Zappa said:  "The United States is a nation of laws, badly written and randomly enforced."

 

 

I have every one of his albums and had the wonderful experience of seeing him live at least twice (with the MOI) in the '70s.  Billie The Mountain is still a favorite, but there's lots of others.....  He really was a genius and most people don't know him well enough to know what he was capable of.  If anyone is interested:  https://en.wikipedia.org/wiki/Frank_Zappa

[mattmc82]

Does this present some issues? 

https://www.forbes.com/sites/alangassman/2020/05/04/was-your-ppp-loan-necessaryif-not-there-could-be-horrific-repercussions/#2fc2e44d50e1

 

Quote

“37. Question: Do businesses owned by private companies with adequate sources of liquidity to support the business’ on-going operations qualify for a PPP loan

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”  Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.

some people are freaking out wondering if they should return the money by may 7th because they had cash on hand to cover half the payrolls

[Mr Bagwell]

On ‎5‎/‎1‎/‎2020 at 4:03 PM, Larry Starr said:

I have every one of his albums and had the wonderful experience of seeing him live at least twice (with the MOI) in the '70s.  Billie The Mountain is still a favorite, but there's lots of others.....  He really was a genius and most people don't know him well enough to know what he was capable of.  If anyone is interested:  https://en.wikipedia.org/wiki/Frank_Zappa

O man, this is hilarious that Frank Zappa was a referenced on this board.

I only know one song that I know of...… something about moving to Montana and being a dental floss tycoon.     LOL!!!!!!!

Don't forget to look up one of his houses and check out the rooms.    Definitely, a strange cat.

[Larry Starr]

1 hour ago, mattmc82 said:

Does this present some issues? 

https://www.forbes.com/sites/alangassman/2020/05/04/was-your-ppp-loan-necessaryif-not-there-could-be-horrific-repercussions/#2fc2e44d50e1

 

some people are freaking out wondering if they should return the money by may 7th because they had cash on hand to cover half the payrolls

People always look for things to worry them; advisors get paid for explaining to their clients things that maybe they should worry about.  I am not worried; these words are important: 

Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Let's say I have plenty of cash on hand in April to cover my payroll costs for the 8 weeks, mostly because my income is clustered in Jan - March, and Nov-Dec.  There is LOTS of current economic uncertainty, and my cash flow may dry up (just like a closed restaurant) if my clients can't pay their bills due to the same economic uncertainty. So, I believe the current economic uncertainty makes it quite likely that my ongoing operations could be drastically affected by the shutdown.   It doesn't say the "ongoing operations during the 8 weeks", just the "ongoing operations".  They have said they are going to look at all the PPP loans over $2mill.  If you are in that category, you should have legitimate worries about your ongoing operations, but the "economic uncertainty" phrase will make it very hard to challenge an employer's certification since, it is "uncertain" and that is all that should be required.

[shERPA]

For TPAs the uncertainty is whether or not their clients will survive this and be able to pay the plan admin bills.  This won't show up in the first 8 weeks, but we will know more soon enough. Article in NYT yesterday suggested 40% of small business going away.  So yeah, there is plenty of uncertainty to go around. 

[RatherBeGolfing]

FYI

The "return" date has been extended to 5/14.  Also hearing that banks are contacting loan recipients of less than $2,000,000, asking them if they are completely sure that they need the loan, which is adding fuel to the fire.  

[Catch22PGM]

16 hours ago, shERPA said:

For TPAs the uncertainty is whether or not their clients will survive this and be able to pay the plan admin bills.  This won't show up in the first 8 weeks, but we will know more soon enough. Article in NYT yesterday suggested 40% of small business going away.  So yeah, there is plenty of uncertainty to go around. 

The drop in the market has led to reduced compensation from recordkeepers for those of us who rely upon those monthly or quarterly payments.  We have also had a significant increase in the percentage of delinquent invoices.  Those two factors were enough for us to feel comfortable applying for PPP to cover payroll and expecting the loan will be forgiven