CPA Bob

06/18/2020

New PPP loan forgiveness guidelines and applications released (06-17-20)

A revised PPP loan forgiveness application and guidelines, and a new "EZ" loan forgiveness application, have been released to incorporate the changes made by the Paycheck Protection Program Flexibility Act and provide additional guidance.

The application and revised interim rules clarify that, for borrowers using the new 24-week loan forgiveness covered period, the maximum compensation eligible for loan forgiveness:

-Per employee is increased to $46,154 (24 ÷ 52 × $100,000) plus covered benefits such as health care, retirement contributions, and state payroll taxes; and
-For owners, is capped at 2.5 months of 2019 compensation, with a maximum of $20,833 (2.5 ÷ 12 × $100,000). Note: The application specifically lists self-employed individuals, general partners, and owner-employees, so it appears corporation owner-employees are included in this cap.

The new application instructions also clarify that:

--Eligible payroll costs do not include any employer health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees;
Employer retirement contributions made on behalf of a self-employed individual or general partner are also excluded from payroll costs; and
-Employer retirement contributions on behalf of owner-employees are capped at 2.5 months' worth of the 2019 contribution amount. This limit is included on the EZ application but is not included on the full forgiveness application or in the updated interim final rule, but it is possible it will be added in the future.

The new simplified EZ application is available to be used by borrowers who:

-Are self-employed and did not list any employees on their original loan application; or
-Have employees, but are not subject to any loan forgiveness reduction due to salary or full-time equivalent employee reductions.
-The revised interim rules and loan applications and instructions are available at:

https://home.treasury.gov/system/files/136/PPP-IFR--Revisions-to-the-Third-and-Sixth-Interim-Final-Rules.pdf
https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Instructions_1_0.pdf
https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf

06/05/2020

PPP loan forgiveness expansion bill sent to President (06-04-20)

The Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) was passed by the House and Senate and is now on its way to the President. The President has indicated that he will sign the bill.

Key provisions of the bill include:

– Extending the loan forgiveness covered period from eight weeks to 24 weeks from the loan origination date, as long as the covered period does not extend beyond December 31, 2020. This means that borrowers will now be able to have all PPP loan amounts paid during this extended covered period forgiven as long as the amounts are expended for qualified purposes (payroll, rent/mortgage interest, and utilities). Borrowers who received the loan prior to the bill's date of enactment may still elect to use either the original eight-week loan forgiveness period or the new 24-week period;

– Only allowing loan forgiveness if at least 60% of the total loan proceeds are used for payroll costs. Currently, forgiveness is limited so that at least 75% of the forgiveness amount is for payroll costs;

– Eliminating the full-time employee equivalent employee reduction provision if the business can document that the reduction was due to the business's inability to:
Rehire individuals who were employees on February 15, 2020, and hire similarly qualified employees for unfilled positions by December 31, 2020; or

– Return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 imposed by specified federal agencies during the period beginning on March 1, 2020, and ending December 31, 2020;

Allowing for a five-year rather than a two-year maturity date for:

– All loans made on or after the bill's date of enactment; and
Loans made earlier than that date, if both the lender and borrower mutually agree;

– Deferring payments of principal, interest, and fees on any PPP loan until the SBA remits the borrower's loan forgiveness amount to the bank (previously, this period was six months to one year from the loan origination date); and

– Allowing taxpayers to qualify for payroll tax deferral even if they've received PPP loan forgiveness.

The text of H.R. 7010 is available at:

Text for H.R.7010 - 116th Congress (2019-2020): Paycheck Protection Program Flexibility Act of 2020

05/21/2020

PPP loan forgiveness guidance released (05-18-20)

The SBA has released the long-awaited loan forgiveness guidance and a Loan Forgiveness Application that Paycheck Protection Program borrowers will submit to their lenders.

Here is what we learned:

-The SBA is using a 40-hour full-time equivalency standard rather than the 30-hour FTE standard applied to most SBA loans. However, borrowers may use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours (even if the employees worked less than 20 hours per week);

-Payroll costs "paid and incurred" over the eight-week period have been a concern. The application clarifies that payroll costs incurred but not paid during the borrower's last pay period of the eight-week forgiveness period are eligible for forgiveness if paid on or before the next regular payroll date. To make things a little less complicated, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day for their first pay period following their loan disbursement date; and

-Business rent or lease payments on leases of personal property that were in force before February 15, 2020, will qualify for forgiveness.
Here is what we still don't know:

-For retirement and health care plan contributions, the instructions do not limit the amount that may be claimed to a pro-rated amount for the eight-week period. Does this mean a borrower could contribute an annual amount during the eight-week period and qualify for forgiveness? We don't think this is the case but we hope additional guidance will be issued to provide further clarification;

-The application does not provide any additional guidance on self-rentals; and

-The application also does not address the forgiveness of home office expenses for self-employed individuals or any other issues for self-employed borrowers. We are hoping for additional guidance on forgiveness for these borrowers soon.

To view the full application and instructions, go to:

PPP Loan Forgiveness Calculation Form

05/05/2020

No deductions for expenses paid by PPP debt that is forgiven (04-30-20)

As anticipated, the IRS has issued guidance stating taxpayers may not deduct expenses that were paid by Paycheck Protection Program loans, if the payment of the expenses results in loan forgiveness under the program. (IRS Notice 2020-32) Loan forgiveness is available under the program for the following expenses paid and incurred during the eight weeks after the borrower receives their funds:

- Payroll costs;
- Mortgage interest;
- Rent; and
- Utilities.

Under the Internal Revenue Code, taxpayers are precluded from claiming deductions paid with exempt income. Because PPP loan forgiveness is excludable from taxable income under the CARES Act, taxpayers may not claim deductions for these expenses.

The Notice is available at:

04/27/2020

NEW: PPP loan calculations for self-employed's and partnerships

The SBA has finally issued guidelines on calculating monthly payroll costs for Paycheck Protection Program loans for all entities, including self-employed taxpayers and partnerships.

Self-employed individuals:

Self-employed individuals with no employees determine their monthly payroll costs by dividing their Schedule C, line 31 net profit amount, up to a $100,000 maximum, by 12. If the line 31 net profit amount is zero, the individual is ineligible for a loan.

If the self-employed individual has employees, add the monthly employee payroll costs to the amount above. These payroll costs are based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee.

To this amount, add the following 2019 costs:
Employer contributions for employee health insurance (portion of Schedule C, line 14 attributable to health insurance); Employer contributions to employee retirement plans (Schedule C, line 19); and Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

Partnerships:
The application for partnerships should be completed at the partnership level. Individual partners may not apply for separate PPP loans.

The maximum loan amount is based on 2.5 times the 2019 monthly self-employment earnings reported to U.S.-based general partners on the 2019 Schedule K-1, Box 14a, net earnings from self-employment tax, with a maximum of $100,000 per partner. If the 2019 K-1s have not yet been completed, they must be completed for purposes of the loan application.

This amount must be reduced by any claimed IRC §179 expense, unreimbursed partnership expenses, and depletion on oil and gas properties. The result is then multiplied by 0.9235 (to remove the "employer" share of self-employment tax).

To this amount, add any 2019:
- Monthly employee payroll costs based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee;
- Employer contributions for employee health insurance (portion of Form 1065, line 19, attributable to health insurance); Employer contributions to retirement plans (Form 1065, line 18); and Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

LLCs:
LLCs compute their payroll costs based on whether they are taxed as a sole proprietorship (SMLLC), partnership, or corporation.

Additional guidance:

The guidance also specifies how nonprofit organizations and C and S corporations should calculate their maximum loan amounts, as well as the documentation each entity type must provide with its application.

The guidance is available at:

04/15/2020

Economic impact payment direct deposit portal open (04-15-20)

The IRS opened its direct deposit portal on its website this morning. By clicking on the "Get My Payment" button at www.irs.gov/coronavirus/economic-impact-payments, taxpayers can:

Enter their bank account information if they hadn't previously requested direct deposit on a return, or if they want to update their information;

Confirm the payment type: direct deposit or check; and
Check their payment status.

Taxpayers wanting to add their bank account information to speed up the receipt of their payment must provide the following information:

- Their AGI from their most recent tax return submitted, either 2019 or 2018;
- The refund or amount owed from their latest filed tax return; and
- Bank account type, account and routing numbers.

Comment: It appears that if a taxpayer does not qualify for a payment due to income level, after entering the requested information a message stating "Payment Status Not Available" and a link to information on eligibility rules will be displayed.

We’re committed to helping you get your economic impact, or stimulus, payment as soon as possible. See if you are eligible for an Economic Impact Payment.

04/10/2020

A quick FAQ on the PPP Loan:

** How can I request loan forgiveness?
*You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

**What is my interest rate?
*1.00% fixed rate.

**When do I need to start paying interest on my loan?
*All payments are deferred for 6 months; however, interest will continue to accrue over this period.

**When is my loan due?
*In 2 years.

**Can I pay my loan earlier than 2 years?
*Yes. There are no prepayment penalties or fees.

04/08/2020

Good news... Wells Fargo received permission from the central bank to start loaning funds TODAY for the PPP (payroll protection plan) - Checks are starting to go out!

04/07/2020

The FTB has posted the following new FAQs about conformity to various portions of the CARES Act:

Q: Are the payments that individuals receive from the federal government (i.e., $1,200 [$2,400 for individuals filing a joint return] and $500 per qualifying child) under the recently enacted federal CARES Act subject to California income tax?

A: No, these payments are not subject to California income tax.

Q: Is the emergency increase in unemployment compensation benefits (in the amount of $600 per week) that individuals receive under the recently enacted federal CARES Act subject to California income tax?

A: No, these payments are not subject to California income tax.

Q: Are the modifications for net operating losses (NOLs) in the recently enacted federal CARES Act applicable for California income and franchise tax purposes?

A: No, these modifications for NOLs do not apply for California income and franchise tax purposes.

Q: Does California conform to the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the recently enacted federal CARES Act?

A: Yes, the federal early withdrawal penalty waivers for distributions from qualified retirement accounts under the federal CARES Act also applies for California income tax purposes.

The FTB's COVID-19 FAQs can be found at:

Frequently asked questions about COVID-19 and filing income taxes

03/31/2020

As many of you already know, the President signed the stimulus bill on March 27th. Here are some details and useful links to help navigate the new bill and what it means fo you:

The President has signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, H.R. 748). In addition to the tax provisions previously reported, the CARES Act provides for Payroll Protection loans of up to $10 million to COVID-19 impacted businesses. The loans:

- Are guaranteed 100% by the Small Business Administration (no personal guarantees or collateral required);
- Must be taken out between February 15, 2020, and June 30, 2020;
- May be forgiven for amounts used to cover basic operating expenses such as payroll costs, rent and mortgage, and utilities for up to two months from the loan origination date (excluded from COD income); and
- Have a maximum maturity rate of 10 years and 4% interest if not forgiven.

Also, in response to the questions we've had about the amounts of the stimulus checks individuals will receive, here is a helpful link to compute the payments:

www.kiplinger.com/tool/taxes/T023-S001-stimulus-check-calculator-2020/index.php

For your reference, here is a list of CARES Act tax provisions:

- Tax credit rebates of up to $1,200 per individual and $500 per child that are phased out for taxpayers with AGI over $75,000 ($150,000 MJF and $112,500 HOH) and will be "rapidly advanced;"
- Deferral of 50% of an employers' payroll tax deposits for 2020 (with 50% of deferred amount due by December 31, 2021, and 50% due by December 31, 2022);
- A refundable employer retention credit equal to 50% of qualified wages against quarterly employment taxes, to offset up to $10,000 of wages paid per employee in 2020;
The reinstatement of NOL carrybacks for the 2018–2020 taxable years, and repeal of the 80% taxable income limitation for the 2018–2020 taxable years;
- A TCJA technical correction that classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactive as if it was included in the TCJA at the time of enactment;
- Penalty-free withdrawals of tax retirement funds of up to $100,000 (income recognized over a three-year period);
A temporary waiver of RMD requirements in 2020;
Increased individual and corporate charitable contribution deductions for 2020;
- The deferral of excess business loss limitations until 2021;
Deferral of an employer's 2020 minimum contributions to its single-employer defined benefit pension plan until January 1, 2020;
- An increase in the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year;
- An exclusion from income for employer-payments made on employee student loans paid before January 1, 2021;
The acceleration of the corporate credit for prior-year minimum tax liability, allowing 100% of the credit to be claimed in 2019 (2018 at the election of the taxpayer); and
- A COD exclusion of small business Payroll Protection loans forgiven under the Act.

The full text of the CARES Act is available at:
www.congress.gov/bill/116th-congress/house-bill/748/text

Stimulus Check Calculator: Find out how much your economic stimulus check will be using this handy tool.

03/20/2020

New filing date extension. You now have until July 15th to file, tho the Government is encouraging those who expect a refund to file now and not wait.

Stay tuned for more updates as they come up. We know these times are taxing, but together we will get through this. :)

03/18/2020

https://mailchi.mp/3e44f40a450b/tax-season-2020

The filing deadline is still April 15th, but the tax payment deadline has been extended to July 15th. Filing extensions can be made but the final deadline for all payments will remain July 15th. Check out the Treasury Press Release for more details.