Funding of 401(k) using PPP loan

[Larry Starr]

2 hours ago, austin3515 said:

Thats what is so frustrating.  The stakes are incredibly high.  We need something more concrete.  I'm not even comfortable assuming that the reference to "paid or incurred" is intended to extend so far as to include the 2019 contributions.  a literal interpretation, sure.  But it just seems so outside the scope of the plain intention (i.e., the plain intention is clearly focused on those 8 weeks).  Is it "impossible" for them to come back at this stage and say the retirement contributions have to relate to the 8 week period?  I feel like we're not at a point yet where that is out of the question.

And I keep getting questions about defined benefit plan contributions.  I can;t imagine they are not eligible, but some more guidance would sure be nice.  Is it too much wishful thinking to assume we will get more guidance on this?   

Here's the white paper that we wrote Sat/Sun/Mon after the new forgiveness form came out. Use that for your source; you won't find anything better at this point.

LISIGassmanKetronStarrCameronPDF5_18_2020.pdf

[austin3515]

That is an excellent article, thnank you for sharing (and writing it!).  That;s what Derrin was saying as well (of course not surprising you would say the same thing),  But this is exactly the kind of language that gives me pause (from the article):

Quote

In what appears to be a possible change in the SBA pronouncements, the new Loan Forgiveness Application can be read to allow for contributions to retirement programs that are incurred OR paid during the Covered Period to count in the determination of total payroll costs and forgiveness.  [emphasis added]

If I tell a client that they can just fund their 2019 profit sharing and they'll be golden, and then that turns out to be wrong, I'm really really in deep doo doo.  Don't I need somethig more concrete before giving that advice?  Larry, are you currently advising your clients to take this approach based on the guidance currently available?

 

[John Feldt ERPA CPC QPA]

On page 14 of the article, "The instructions for Line 9 of the Application provide for the inclusion of 'any amounts paid to owners (owner-employees, a self-employed individual, or general partners). This amount is capped at $15,385 (the 8 week equivalent of $100,000 per year) for each individual, . . .'"

This limitation for self-employed individuals and partners appears to also apply to "owner-employees" as an "owner-employee" is listed as another group to be limited in addition to sole props and partners. Do they define this term "owner-employee" anywhere? What advice are you giving to S Corp owner-employees or C Corp owner-employees?

[Mike Preston]

3 minutes ago, John Feldt ERPA CPC QPA said:

On page 14 of the article, "The instructions for Line 9 of the Application provide for the inclusion of 'any amounts paid to owners (owner-employees, a self-employed individual, or general partners). This amount is capped at $15,385 (the 8 week equivalent of $100,000 per year) for each individual, . . .'"

This limitation for self-employed individuals and partners appears to also apply to "owner-employees" as an "owner-employee" is listed as another group to be limited in addition to sole props and partners. Do they define this term "owner-employee" anywhere? What advice are you giving to S Corp owner-employees or C Corp owner-employees?

The sloppy language all around causes much confusion to those that don''t do a deep dive.  

(3) Owner-employee. The term "owner-employee" means an employee who—
 (A)owns the entire interest in an unincorporated trade or business, or
 (B) in the case of a partnership, is a partner who owns more than 10
 percent of either the capital interest or the profits interest in such
 partnership.
To the extent provided in regulations prescribed by the Secretary, such
term also means an individual who has been an owner-employee within the
meaning of the preceding sentence.
 

[John Feldt ERPA CPC QPA]

Okay, so the assumption is that the definition is tied to IRC section 401(c)(3).

[Gilmore]

What about the deductibility issue?  I'm assuming that is still not resolved?

[Mike Preston]

Not yet.

[Larry Starr]

8 hours ago, austin3515 said:

That is an excellent article, thnank you for sharing (and writing it!).  That;s what Derrin was saying as well (of course not surprising you would say the same thing),  But this is exactly the kind of language that gives me pause (from the article):

If I tell a client that they can just fund their 2019 profit sharing and they'll be golden, and then that turns out to be wrong, I'm really really in deep doo doo.  Don't I need somethig more concrete before giving that advice?  Larry, are you currently advising your clients to take this approach based on the guidance currently available?

 

It is rare that Derrin and I don't agree, but it does happen.  When that happens, they usually they shoot off fireworks and advertise it in a full page ad in the New York Times.... but I digress.....

I tell clients that the guidance to date clearly allows for funding their retirement plans and that WHATEVER is contributed in the 8 weeks, without limitation, will count toward their compensation side of the reimbursement calculation.  I also tell people that if they are stretching to make this contribution, wait until about 6 weeks into their 8 weeks and let's see if we get more guidance.  And I say it's always possible that they can change their mind, but I am highly doubtful that will happen (but I could be surprised!).

[Larry Starr]

7 hours ago, John Feldt ERPA CPC QPA said:

On page 14 of the article, "The instructions for Line 9 of the Application provide for the inclusion of 'any amounts paid to owners (owner-employees, a self-employed individual, or general partners). This amount is capped at $15,385 (the 8 week equivalent of $100,000 per year) for each individual, . . .'"

This limitation for self-employed individuals and partners appears to also apply to "owner-employees" as an "owner-employee" is listed as another group to be limited in addition to sole props and partners. Do they define this term "owner-employee" anywhere? What advice are you giving to S Corp owner-employees or C Corp owner-employees?

An S corporation owner is a shareholder employee, not an owner employee.  We see no justification for any other tortured interpretation. If they meant owners of S corps, I can guarantee they would have said S corps SOMEWHERE. They did not.  And the only statutory definition is as posted by my alter ego!

[Larry Starr]

4 hours ago, Gilmore said:

What about the deductibility issue?  I'm assuming that is still not resolved?

It is not, but I'll take any bet that it will be. I have absolutely no doubt. Both house and senate, democrat and republican have said that IRS analysis is NOT what congress intended and needs to be fixed. If not by IRS reinterpreting, then by congressional action. And I'm guess before the end of next week.

[austin3515]

13 minutes ago, Larry Starr said:

I tell clients that the guidance to date clearly allows for funding their retirement plans and that WHATEVER is contributed in the 8 weeks, without limitation, will count toward their compensation side of the reimbursement calculation.

Are you not concerned that future guidance might reflect a more limited interpretation?

[Larry Starr]

46 minutes ago, austin3515 said:

Are you not concerned that future guidance might reflect a more limited interpretation?

I'm concerned that the russians might launch a nuclear attack on us (about as much as I am "concerned" about a more limited interpretation provided later).  The downside is not so bad; they've contributed to the plan what they were going to contribute anyway.

[austin3515]

1 hour ago, Larry Starr said:

The downside is not so bad; they've contributed to the plan what they were going to contribute anyway.

I dont understand this.  The downside is terrible.  If they relied on this interpretation and the SBA later comes out and says "Seriously?  You know thats not what we meant.  The whole law is based entirely on the 8 weeks, and that was so clear that to take any other position was not in good faith."  You don;t know for sure they won;t say that (heck I would say that if it were me, because it kind of is that obvious).  And if they did come out and say that (which I notice you do allow can happen, even though it was buried in sarcasm and included a "shiny object" to distract the reader):

a) They funded the 2019 contribution which they might not have done if not forgivable because it was discretionary.    Even if they prefunded all of 2020 for the same reason, again they might not have done if not eligible for the forgiveness.

b) And now the have to fund something that is in line on top of that in order to get the loan forgiveness.

That would be a client that I would expect to fire me if that all happened based on my recommendation.  And because I don;t like to get fired, I'm not comfortable setting myself up for this one.  Now mind you I do not disagree with your literal interpretation of the very limited guidance that is available.  But even you have reservations as evidenced by your "hedgey" language ("it appears to" and "can be read to allow").  That's CYA language.  If I asked you (in 2019 anyway) what's the maximum loan amount, you would not say "the rules can be read to allow a loan of $50,000 or 50%".

[Larry Starr]

47 minutes ago, austin3515 said:

I dont understand this.  The downside is terrible.  If they relied on this interpretation and the SBA later comes out and says "Seriously?  You know thats not what we meant.  The whole law is based entirely on the 8 weeks, and that was so clear that to take any other position was not in good faith."  You don;t know for sure they won;t say that (heck I would say that if it were me, because it kind of is that obvious).  And if they did come out and say that (which I notice you do allow can happen, even though it was buried in sarcasm and included a "shiny object" to distract the reader):

a) They funded the 2019 contribution which they might not have done if not forgivable because it was discretionary.    Even if they prefunded all of 2020 for the same reason, again they might not have done if not eligible for the forgiveness.

b) And now the have to fund something that is in line on top of that in order to get the loan forgiveness.

That would be a client that I would expect to fire me if that all happened based on my recommendation.  And because I don;t like to get fired, I'm not comfortable setting myself up for this one.  Now mind you I do not disagree with your literal interpretation of the very limited guidance that is available.  But even you have reservations as evidenced by your "hedgey" language ("it appears to" and "can be read to allow").  That's CYA language.  If I asked you (in 2019 anyway) what's the maximum loan amount, you would not say "the rules can be read to allow a loan of $50,000 or 50%".

The downside of the russian's coming is terrible too! But I ain't gonna worry about it! Boy, all you can see is negatives; all I see is positives.  We don't know FOR SURE anything really ("does anyone really know what time it is? does anyone really care?).  I allow (in this environment) for ANYTHING, including getting a notice from SBA saying "never mind; just keep all the money" but that ain't gonna happen either.

For my clients there is no big downside.  We are talking about funding the 2019 contribution which they have already committed to and on which the 2019 admin has been completed and benefit statements prepared and distributed (we do our work on the accrual basis).   No downside to putting the money into the plan within the 8 weeks except for a possible effect on cash flow.  And if they want to put in some of the 2020, again no downside since they are going to do it anyway.  I am not telling them to put  money in that they aren't sure they want to put in.  There usually is NO OTHER source of funds for forgiveness; remember, this stuff shows up in the compensation calculation, unlike rent, utilities, etc.  The pay to the employees is already established; this is on top to get to 75% or more (even 100%).

Every client I talk to understands that we are using what we know at this point and that it could be different since they keep giving us new stuff.  I do not expect anything they give us from now on will "take away" anything we already have since so many people have already depended on those rules. Nobody will fire us for giving them the best we can figure at this point; and I practice what I preach. We are doing exactly the same thing.  I may have better relationships with our clients since the issues you are concerned about are not even an inkling of an issue in my mind. Only time will tell if I'm correct on all this. We HAD to put the reservations in the article, because I am not talking directly to those individuals to spend a couple of minutes going into greater depth of where we are now and what possible risks there might be (though at this point I am still leaving out my concern about the russians!). Do I have reservations: let me state this clearly - NO.

[austin3515]

Though it was tempting to respond, I've decided to just ignore your invocation of nuclear war.

There is just absolutely nothing stopping them from taking a hard-line "8 week expenses only" approach when they issue more guidance.  I'm old enough to remember when the IRS concluded that expenses funded by forgivable loans were non-deductible to the shock of many on-lookers who expressed disbelief they could take such an outrageous position.  I am among those who considered that position by the IRS to be outrageous.  Counting 2019's profit sharing as a "payroll related expense" for the 8 week window seems, to say the least, "aggressive."  And it would not seem outrageous to me if they said it did not work, depsite the open ended language in their 2 pages of instructions. 

I am hoping for some enormous Q&A that covers this and other questions that badly need answering.  Not least of which is this owner-employee nonsense.  Guidance just has to be forthcoming.  I'm advising clients to be ultra-conservative until the SBA says we can use your interpretation.

[Larry Starr]

3 hours ago, austin3515 said:

Though it was tempting to respond, I've decided to just ignore your invocation of nuclear war.

There is just absolutely nothing stopping them from taking a hard-line "8 week expenses only" approach when they issue more guidance.  I'm old enough to remember when the IRS concluded that expenses funded by forgivable loans were non-deductible to the shock of many on-lookers who expressed disbelief they could take such an outrageous position.  I am among those who considered that position by the IRS to be outrageous.  Counting 2019's profit sharing as a "payroll related expense" for the 8 week window seems, to say the least, "aggressive."  And it would not seem outrageous to me if they said it did not work, depsite the open ended language in their 2 pages of instructions. 

I am hoping for some enormous Q&A that covers this and other questions that badly need answering.  Not least of which is this owner-employee nonsense.  Guidance just has to be forthcoming.  I'm advising clients to be ultra-conservative until the SBA says we can use your interpretation.

Austin, I have no problem with other people taking positions different from mine; my friends will tell you that I am often a contrarian and I accept that readily (of course, I am almost always right!  No brag: just fact; LS for Walter Brennan ?). I too would LOVE them to come out and say "Larry was right all along".  They might or might not. But if clients ignore my opinion and don't qualify for 100% forgiveness because of a conservative approach, then who will be blamed? And if you didn't give your clients that information and let them make their own decision, I think there is a possible problem there.  The additional problem is that there is a very rigid time restriction and for the earliest recipients of PPP money, that runs out in the next few days.

[mattmc82]

if they can get to 75% with just the 8 week period included, great. if not (and the final ruling is 2019 contributions do not count), then just a portion becomes a loan of 1%, right? or am i missing something? worst case scenario is just a portion not being forgiven.

[Mike Preston]

6 minutes ago, mattmc82 said:

if they can get to 75% with just the 8 week period included, great. if not (and the final ruling is 2019 contributions do not count), then just a portion becomes a loan of 1%, right? or am i missing something? worst case scenario is just a portion not being forgiven.

You are missing nothing.

[Larry Starr]

6 minutes ago, mattmc82 said:

if they can get to 75% with just the 8 week period included, great. if not (and the final ruling is 2019 contributions do not count), then just a portion becomes a loan of 1%, right? or am i missing something? worst case scenario is just a portion not being forgiven.

First, they need to get to 100%; 75% is just the MINIMUM needed on compensation to get no penalty.  If you get to 100% on compensation without worrying about the ancillaries (rent, utilities), then that is optimal.  If you are subject to penalty for not hitting all the targets (and don't forget about the FTE and reduction in comp tests), then yes, what you do get is forgiven and the rest just continues as a loan with a 2 year repayment and a 1% interest rate.  Not such a bad deal also.

 

[austin3515]

So lets say someones 8 week period does end and they took Larrys approach.  The reported that they spent enough for loan forgiveness and the loan is forgiven.  But then they get audited and SBA or the IRS disallows that portion.  Thats the worst case scenaro.  That you reported it as eligible, and took  the loan forgiveness, when you were not eligible for it.  Oh and by the way perhaps you could have found more eligible ways to spend the money thus getting 100% forgiveness. 

[RatherBeGolfing]

23 minutes ago, Larry Starr said:

But if clients ignore my opinion and don't qualify for 100% forgiveness because of a conservative approach, then who will be blamed?

If its a question of "I have no other qualifying expenses left", I agree.  The only drawback in that case is cashflow.  If its a decision between funding contributions not specifically related to the 56 day period and another expense that qualifies for forgiveness, it is a very different situation. This should be a last resort, not a decision between expense A and Expense B.

 

29 minutes ago, Larry Starr said:

And if you didn't give your clients that information and let them make their own decision, I think there is a possible problem there.  The additional problem is that there is a very rigid time restriction and for the earliest recipients of PPP money, that runs out in the next few days.

The vast majority of practitioners should refer this to the client's tax advisor, and should not be handing out advice on PPP loans.  This is especially true if you are picking up your own knowledge on the subject from other people's abstracts, even when authored the legendary panda himself  

[shERPA]

I don't see this as a major risk for a TPA.  We don't tell them what to contribute or whether or not it is forgivable.  As Sgt. Friday says, we provide "just the facts".  The first fact is right now the guidance doesn't limit the amount of plan contribution to a pro-rated amount.  The second fact is that this may change.   So what are the strategic implications?

1.  If the question involves a 2019 contribution receivable that the client will have to contribute by 9/15/20 anyway (in order to claim a 2019 deduction), then the advice is pretty easy.  Go ahead and contribute it during the PPP covered period.   If it ends up all included in the forgiveness, great!  If not, they are no worse off than they would have been (assuming the  ~3 month acceleration of the contribution doesn't create a huge cash flow issue).

2.  If they are considering a 2020 pre-contribution, again if it is one they will have to make anyway, then it's just a timing/cash flow issue.  If they can swing the cash flow, go for it during the covered period.  Same result as (1).

3.  If they are considering a contribution that they would not otherwise make, they need to understand that there is a risk that later guidance may exclude some  or much of the contribution from the forgivable amount.  And they can't take the contribution out of the plan once deposited. If they are good with this risk, go for it.  If they are not good with it, don't.

 

[Larry Starr]

11 minutes ago, austin3515 said:

So lets say someones 8 week period does end and they took Larrys approach.  The reported that they spent enough for loan forgiveness and the loan is forgiven.  But then they get audited and SBA or the IRS disallows that portion.  Thats the worst case scenaro.  That you reported it as eligible, and took  the loan forgiveness, when you were not eligible for it.  Oh and by the way perhaps you could have found more eligible ways to spend the money thus getting 100% forgiveness. 

Well, if you get your forgiveness application in on the day after the 8 weeks ends, our belief (which could be wrong of course) is that they will once again apply the rules in effect at the time of submission (we actually think that's why it won't change, because they will "have to" apply the rules in effect at time of application for funds, but that's another argument) and your retirement money will count even if they write a new rule after.  

In addition, it is the BANKS that will be "auditing" (or rather, approving the application for forgiveness) and they just can't determine how much retirement money, contributed during the 8 weeks, is applicable to each year.  Therefore, that's another reason why the rule won't change; the banks would not be able to administer it.  The agencies have been given marching orders from the White House to NOT make things difficult.  That's a real important restriction on them.  The IRS won't be auditing anything; this is not their battle. 

And if you have "more eligible ways" (whatever that means) to garner forgiveness, by all means do that first. But the only thing available is salaries, and I'm going to assume you have already maximized that as best as you can.  

I understand your reserved position; I just think it will disadvantage clients more than advantage them.

[Larry Starr]

2 minutes ago, shERPA said:

I don't see this as a major risk for a TPA.  We don't tell them what to contribute or whether or not it is forgivable.  As Sgt. Friday says, we provide "just the facts".  The first fact is right now the guidance doesn't limit the amount of plan contribution to a pro-rated amount.  The second fact is that this may change.   So what are the strategic implications?

1.  If the question involves a 2019 contribution receivable that the client will have to contribute by 9/15/20 anyway (in order to claim a 2019 deduction), then the advice is pretty easy.  Go ahead and contribute it during the PPP covered period.   If it ends up all included in the forgiveness, great!  If not, they are no worse off than they would have been (assuming the  ~3 month acceleration of the contribution doesn't create a huge cash flow issue).

2.  If they are considering a 2020 pre-contribution, again if it is one they will have to make anyway, then it's just a timing/cash flow issue.  If they can swing the cash flow, go for it during the covered period.  Same result as (1).

3.  If they are considering a contribution that they would not otherwise make, they need to understand that there is a risk that later guidance may exclude some  or much of the contribution from the forgivable amount.  And they can't take the contribution out of the plan once deposited. If they are good with this risk, go for it.  If they are not good with it, don't.

 

Precisely exact summary of what we are doing. Nice job there old friend! 

[austin3515]

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.  And clients (and CPAs) are obviously turning to us for guidance on what retirement contributions are eligible for forgiveness.  So to say it should be referred elsewhere is probably just not realistic.  I guarantee you I know more about this aspect of it then "most" CPA's.  As we can see there is not much to know since they've told us next to nothing.

Sherpa, 1 and 2 in your post are "obvious."  The question becomes is it reasonable to claim them as part of the debt forgiveness calculation on a form you're filing with the SBA.  So yes its obvious to fund it, its less obvious whether Uncle Sam is willing to foot the bill (outside of contributions specifically related to  comp in the 8 week window).  Now, as someone already referenced, for cash flow reasons it would behoove someone to know if Uncle Sam will be paying for it or not.  If not, they may just as soon wait until September 15th to fund it.  This is no small consideration in the middle of an economic and health catastrophe.

The question that is really problematic has always been your 3rd point.  There are obviously a lot of medical practices out there where the Docs are not going to pony up $40,000 apiece (their $37K + the staff contribution) for retirement contributions when their business has dropped 50% overnight.  So whether or not this is eligible for forgiveness makes the difference between whether or not they will EVER fund it.

In any event I come back to the first thing I said.  Wait until the earlier of a) when we get the guidance ; or b) the end of your 8 week period before making any decisions.

[shERPA]

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.  

[austin3515]

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 :).

[Larry Starr]

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?

[austin3515]

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

[Larry Starr]

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!  

[John Feldt ERPA CPC QPA]

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

[Larry Starr]

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!

[austin3515]

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?

[Belgarath]

June of an election year, so bipartisan compromise may be in short supply...

[austin3515]

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.

[RatherBeGolfing]

1 hour ago, austin3515 said:

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.

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

[Belgarath]

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.

[austin3515]

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.

[RatherBeGolfing]

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.

 

[austin3515]

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.

[duckthing]

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.

[RatherBeGolfing]

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. 

 

[austin3515]

I'm just glad that the restaurants can now pay their employees for service that will generate them income and they can have the payroll forgiven. That is assuming the Prez signs the bill.

[Larry Starr]

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.