Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 27, 2020

PPP Loan &
the Minister’s Housing Allowance (part 2)

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Dear Clients and Friends:

The SBA has made it official: the minister’s housing allowance is a part of wages for purposes of the PPP Loan application.

See the following link to the US Treasury Department’s website, Paycheck Protection Program Loans Frequently Asked Questions (as of April 26, 2020), and look at Question 32:

32. Question: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?

Answer: Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.

One Issue Still Remains
There is no flat statement that the minister’s housing allowance is also a part of wages for purposes of PPP Loan forgiveness, although I strongly suspect that we will have clarity on this issue soon. Based on the above response to Question 32, the SBA/US Treasury may believe that this issue is fully resolved.

Even without clarity on forgiveness, with a bit of planning, the forgiveness related to the minister’s housing allowance can be made a non-issue. During the eight weeks of the PPP Loan spending cycle, do not pay housing. Convert all housing to normal wages. Subsequent third- and fourth-quarter tax planning can make the related tax issues more manageable.

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 22, 2020

PPP Loan Forgiveness 

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Dear Clients and Friends:

My Mistake!
I made a mistake in my last newsletter. Employer-paid Social Security, Medicare, and federal unemployment taxes are not CARES ACT wages for PPP Loan forgiveness purposes. I just assumed that since these employer taxes are CARES ACT wages for the purpose of getting the PPP Loan that they would be part of the loan forgiveness calculation. Wrong!

My first mistake was in assuming! When the government writes the rules, it is against the rules to assume anything.

Every day my understanding of the PPP Loan forgiveness rules evolves.

Housing Allowance
My understanding of housing allowance as a part of the CARES ACT is also evolving.

I’ve made compelling arguments that minister’s Section 107 housing allowances are ‘wages’ for purposes of the CARES ACT.

Did I really win?
I actually won that argument with a loan underwriter – once! But he told me, in no uncertain terms, that it may be wages for the PPP Loan but, it is, not wages for the PPP Loan forgiveness. Apparently there is a more definitive list of CARES ACT wages for the loan forgiveness than there is for the loan application.

The bottom-line: housing allowance is not CARES ACT “wages” for PPP Loan forgiveness. That is unlikely to change before June 30, 2020.

Amy
Amy Foster proofread this short memo; Amy is my trusted colleague and cohort. In her sage voice, she said, “Wait until tomorrow to mail this out; you know it will all be different by then.”

She has a point.

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 20, 2020

New PPP Loan Funding and the Loan Forgiveness 

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Dear Clients and Friends:

Many of us have received the Paycheck Protection Program (PPP) Loan. Those of us who have not, do not despair: there is another round of funding expected from Congress.

A Potential Problem With the New Funding
There is a potential problem with this second round of funding!

The first round of PPP Loans issued are widely reported to have been “misused.” Misused is a polite code word for ‘fraud and theft.’ When you toss $349,000,000,000 into a loan fund that is, by design, intended to get to small businesses quickly, fraud and theft are inevitable.

As lenders well know, if it is not too widespread, fraud and theft can be a simple cost of doing business. The real problem seems to be that some of our major national and regional banks may have willingly facilitated the “misuse” of these relief funds. I will not name any names here; that’s not my job. If you want to know, read a few of our national newspapers.

The culpable banks have been mentioned in the media. The news reports that these banks are, ‘playing favorites’, ‘limiting access to the PPP Loan program’, and ‘disregarding SBA rules’ to maximize bank profits over service delivery to small businesses. I suspect that the problems with these large banks run deeper.

Proverbs
I have a few proverbs reasonably well known to my clients and friends. One of these proverbs is this:

Forgiveness!
The PPP Loan is a loan. (Notice there is a period at the end of that sentence!) This is a LOAN! It’s a loan until it is forgiven. Pay attention! You do not know this stuff as well as you may think. I know I didn’t and don’t. There is a big hiccup!

The loan forgiveness requires very specific behavior! The forgiveness requirements are not obvious! Pay attention! There is stuff here we need to learn.

8 Weeks
The loan must be used within an 8-week time frame beginning on the day that the loan hits your bank account. Do not press your timeline. I suggest that you complete your spending plans in 7-weeks, 7-and-a-half at most.

75% Must Be Spent On Wages
Again, I suggest that you spend more than 75% on wages and try not to cut too fine a line on the definition of wages. Wages, in the CARES ACT, has a precise definition. There are a few simple rules:

1. If it goes on a W-2 (in Box 1 “Wages”), the CARES ACT will treat this as ‘wages’.
2. If it goes on a Form 1099 for a contractor it is not wages!!! If you have a question about this, we are happy to help.

The CARES ACT will allow other items to be wages:

1. Employer-paid Social Security and Medicare taxes are ‘wages’.
2. Employer-paid health insurance: this does not include the portion that is paid by the employees.
3. Employer-paid portion of certain retirement plans: 401k plans, SIMPLE IRA, SEP IRA.

Correction from original newsletter! Employer-paid Social Security, Medicare, and federal unemployment taxes are not CARES ACT wages for PPP Loan forgiveness purposes. I just assumed that since these employer taxes are CARES ACT wages for the purpose of getting the PPP Loan that they would be part of the loan forgiveness calculation. 

Again, I urge caution. Be well above 75%. Complete the spending within the required 8-week period of time. Be super cautious: I recommend that 100% of the PPP Loan be spent on wages within the required time frame. This means that there will be fewer questions to ask upon forgiveness time.

75% Must Be Spent On Wages – THE HICCUP!!
There is a big hiccup in the 75% spent on wages rule!

The employee head-count must be the same or higher than the number of employees showing on your PPP Loan Application!!

The employee head-count
The employee head-count is a very big deal! If you spend 75% of your PPP Loan on employees, within the 8-weeks as required, and fail your employee head-count, your loan will not be forgiven!!

If you fail your employee head-count, your loan will not be forgiven!
The solution is simple: Do not fail your employee head-count!

What are the head-count rules?
Here begins the problem: the SBA hasn’t told us the rules. We really don’t know.

Here’s what I think the rules are:
The number of employees shown on the PPP Loan Application, at least with the underwriters we have worked with, is reconciled to the number of W-2s issued in 2019.

The Problem!
The rules to count employees necessary to get the PPP Loan and the rules to have the loan forgiven are not the same!

The CARES ACTS created the PPP Loan for the single purpose of keeping people off unemployment. Who gets unemployment and who gets a W-2, are subject to different rules. Getting the loan approved and having the loan forgiven are, likewise, going to be subject to different definitions of ‘who is an employee’.

We will be required to do some sort of ‘full-time’ equivalence (FTE) calculation to find out who is an ‘employee’ for purposes of loan forgiveness. This is a different definition of an ‘employee’ from that which was used to obtain the loan and will cause a lot of PPP Loans to be unforgiven.

My Advice
Make sure that, at the end of your 8-week spending period and again, at the end of June, that you have the same number of employees (or more) and that they are paid the same wages (or more) than they were paid prior to the COVID-19 crisis.

I am the first to admit that my advice is over-cautious. CPAs are cautious creatures.

You Can Spend Up to 25% of the PPP Loan On Select Overhead:

• For the mortgage on business property, but only for the interest portion
  • And the mortgage had to be in place on February 15, 2020.
• For business property rent or lease
  • Must have a current lease document in effect prior to February 15, 2020
  • No advanced or pre-payments are allowed
• And, for business utilities.

Conclusion
These are the rules as I understand them today. I promise that next week, my understanding will be different. You can 100% guarantee significant changes are coming as these rules evolve.

I recommend caution and more caution! I recommend using more than 75% on wages. I recommend that you pay close attention to the employee head-count. I recommend that 100% of the loan be expended well within the 8-week time prior allowed.

If you need advice, please email me at: SteveR@srcocpa.com

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 6, 2020

SBA Wages & Minister’s Housing Allowance 

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Dear Clients and Friends:

We are already getting some SBA push back on Minister’s Housing Allowance. This push back is not uniform. The SBA is, itself, not sure of the rules.

Attached, by reference to the following link, is a letter making the case that ministerial housing allowance is a valid part of wages.

https://srcocpa.sharefile.com/d-s4130d57f2834ba69

I believe that the housing allowance is a legitimate part of “other similar compensation” and my letter makes that case.

This letter is a part of the “2019 Payroll Summary Report” to reconcile your wages to your W-2s and is to be a part of your loan application.

The CARE Act does not address a minister’s housing allowance. Those types of issues are too detailed for this early stage of the process. Typically issues such as the housing allowance are addressed in SBA regulations which can take months to years to develop. The SBA may eventually pass rules and guidelines addressing such matters, the CARES Act only defines the Paycheck Protection Program in broad terms as: Salaries, wages, tips, commissions and “other similar compensation”.

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 5, 2020

Timely! SBA Releases Third Version of
Paycheck Protection Program Loan (PPPL)
Application Rules

 

Dear Clients and Friends:

A new PPP loan application
We have a 3^rd draft of the PPP Loan application rules. These will likely be the ‘mostly’ final rules. I suspect a tweak here and there, but what we have now will be the rules and procedures that will be followed throughout this SBA Program.

Not bad news!
To the best of my knowledge, no PPP Loans have been processed by the SBA. These final rules put all applications back to the same starting point.

I believe that this progression from 1^st, 2^nd and now to the 3^rd and, hopefully, final application is a deliberate progression by the SBA. This program was sprung on the SBA with blinding speed; they were not prepared. The SBA, for many reasons, ill-prepared though they were, needed to be doing something to ease business fears.

These prior applications did help SBA customers organize their data as the SBA prepared for the onslaught of PPP Loan applications.

Online applications
The biggest news is that the PPP Loan applications will be made through your banks, but will be filed online via internet access.

Not all good news
A new starting point for all borrowers fails to take into account several important factors:

1. Not all banks will have their web-based PPP Loan portals open immediately; the bigger banks will be open first simply because their IT departments are more robust.
2. Not all banks and lenders are SBA-approved and, consequently, will not be able to make SBA Loans.
3. Many banks that are SBA-approved will not process PPP Loans for new customers.
4. And banks can legally play favorites. Their best and biggest customers will get preferential treatment.
5. For the SBA, the PPP Loans are still first-come, first-served.

Documentation – Part 1
In addition to the application, we now know in more detail the documentation that the SBA and lenders will require. I strongly advise that you provide all the suggested documentation with the application. If required documentation is missing or hard to understand, the banks have many thousands of applications behind yours. If your application is set aside for lack of appropriate documentation, it could be months before it finds its way back in the queue again. By then, it may be too late.

Documentation – Part 2
PPP Loan documentation will be uploaded by internet portal directly to the bank.

The required documents are:

• 2019 IRS Form 940
• 2019 IRS Forms 941: all four quarters
• 2019 state unemployment tax forms: all four quarters
• 2019 IRS Forms W-2 with supporting IRS Forms W-3
• 2019 Payroll summary with corresponding bank statements*
  • Required data:
    • Number of full-time employees as of December 31, 2019
    • Number of full-time employees as of February 15, 2020
    • Documentation for health insurance premiums paid
    • Documentation for employer retirement contributions paid
• List of all employees with compensation in excess of $100,000*
• Breakdown of payroll benefits*
• *Note: for new businesses, provide payroll data using the time period from January 1, 2020 to February 29, 2020.
• Miscellaneous documentation
  • Include our Authorized Representative letter
    • Without that letter, we will not be given access to that portal
    • We will likely draft a new Authorized Representative letter on Monday.
  • Other documentation in support of your application that is:
    • Requested by the bank or SBA, or
    • Determined by you to be helpful to your application

No deviations
Do not deviate from the above list. The more work required of bankers and underwriters, the more likely the application will simply be tossed aside. Try to give the bank exactly what they ask for.

If you must!
If, for whatever reason, you must deviate from the exact documentation requested by the SBA, write and upload a short but clear explanation as to why.

These are scary times
Please stay safe!

This virus is real. It is dangerous. It will continue to kill. It will kill a lot of people before things get better.

These loans will not mean a thing if our friends and loved one start to die.

Hunker down! Stay down! And, be safe!

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 3, 2020

All Existing
Paycheck Protection Program Loan (PPPL) Applications
Will Need to be Re-done – Fast!

 

To Our Clients and Friends:

At midnight last night, the SBA issued a new application for the PPP Loan. All existing applications will need to be redone.

Following is a link to the new application (as of April 3, 2020):
https://srcocpa.sharefile.com/d-s4c2d296f82b4a1a9
The last page of this application is a letter appointing me as your authorized representative. It must be completed by you; this is important.

Re-do or replace your existing applications quickly. If you have not done an application, the new application process will allow you to move up in the first-come-first served order. This “midnight” change in the rules has the effect of leveling the field or resetting the order in which applications are received.

There are limited funds:
Do your applications as quickly as possible!

Authorized Representative
Please note on page 2 of the application that there is only one signature box for the ‘Authorized Representative’. I’ve already put my name on the form. When you send this form to me for my review, I will sign off and send it back to you or make arrangements to get it to your bank.

The SBA is telling us that the business owner cannot also be the ‘Authorized Representative’. The SBA wants to have an ‘Authorized Representative’, who is not the owner, make certain representations. If you will note at the middle of page 2 of the application the heading, “Certifications”.

These “Certifications” must be made by “The Authorized Representative.” I have already initialed these boxes pending my review.

As an authorized representative, I can also help defend the application during the underwriting process.

Sincerely,

Steve Richardson, CPA

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 1, 2020

 

The SBA’s ‘Economic Injury Disaster Loan’

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To Our Clients and Friends:

This newsletter will focus on the role of the Small Business Administration (SBA) in the economic recovery.

I’m qualified and licensed to read tax law and make conclusions. SBA’s ‘Economic Injury Disaster Loan’ is not tax law. I may not be as ill-informed as a layman, but reading and studying these laws is a daunting task.

The Good News

• The SBA’s ‘Economic Injury Disaster Loan’ and the ‘Paycheck Protection Program Loans’ are easy to get.
• These loans are for both commercial businesses and nonprofits, including churches.
• Some loans can be made without personal guarantees
• Loan payments can be deferred for six-months
• The PPP Loan (discussed below) may be forgivable in part or in whole.
• No prepayment penalties (which could be important in loan forgiveness planning).

The news that concerns me

• The program is so new that the SBA’s own website has incorrect information.
• The rules are evolving.
• These loans ‘may be forgivable’ but how they are to be forgiven is, according to the law, to be determined later by the SBA, so we have a ‘trust the government’ scenario. Somehow that makes me nervous.
• The personal guarantee v. the no personal guarantee is a snapshot of how these ‘Economic Injury Disaster Loans’ will work.
  • Each loan will be a unique negotiation
  • The rules for one loan will likely be very different from the terms of a nearly identical loan depending upon vague and ill-defined criteria.
  • In government language, “vague and ill-defined criteria” are often referred to as Rules and Regulations.
  • The “Rules and Regulations” have yet to be written; that worries me a lot!

Section I: The Emergency EIDL Grant
The Economic Injury Disaster Loan program, also known as the EIDL program has two parts.

• The primary part is the loan itself, which I will cover in Section II.
• There is also an ‘expedited’ EIDL Grant.

The EIDL Grant
All who apply for an EIDL loan will be eligible for up to a $10,000 emergency grant to be issued within 3 days of the application being received.

The EIDL Grant Application
This application is easy!

Go to: https://COVID19relief.sba.gov/#/

This is the online application; as I said above, it is easy.

On the last page of this 4-page application, list me as a person to whom the SBA can talk to. List my fee for this advice as zero. That way I can talk to the SBA about your EIDL Grant, and, I assume, your EIDL Loan.

Forgivable
Up to $10,000 of this grant is forgivable.

In order to be forgiven, the EIDL Grant must be used appropriately for:

• Paid sick leave
• Maintaining payroll
• Meeting increased costs of materials due to an interrupted supply chain
• Business rents or mortgage payments
• Other obligations that cannot be paid due to lost revenues

Section II: The Economic Injury Disaster Loan (EIDL)
The $10,000 Grant discussed in Section I is part of this program, but the application and substance of the EIDL is very different.

Not forgivable
The EIDL Loan is not forgivable!

EIDL Loan Program
The purpose of the EIDL Loan is:

• To provide small businesses with working capital loans of up to $2-million.
• To offer low interest rates:
  • 3.75% interest rates on commercial loans
  • 2.75% interest rates on Churches and other nonprofits
• This loan is 100% based on credit score
• Smaller loans of less than $200,000 can be approved without personal guarantees
• There are no early payment penalties
• There is a 30-year amortization period.

The EIDL Loan terms are generous, but the loan must be repaid. The only forgiveness related to this loan is to go out-of-business with no personal guarantees.

Section III: The PPP Loan or ‘Paycheck Protection Program Loan’.
The purpose of the loan is to encourage businesses to retain employees through the COVID-19 crisis. This loan may be partially forgivable.

Who Qualifies
The rules on who qualifies for this loan are generous.

• A business with less than 500 employees
• Independently owned franchises with less than 500 employees
• “Accommodation and Food Services,” if each location has less than 500 employees
• Sole proprietors, independent contractors, self-employed individuals, farmers, etc.
• §501(c)(3) nonprofits. This includes churches!
• AND You must have been in business since 02-15-2020 and paid taxes on your employees or independent contractors.

How much can you borrow?

• 2.5 times average monthly payroll for the previous year, up to $10 million.
• Payroll costs are capped at $100,000 for each employee
• For example, if your average monthly payroll for 2019 was $30,000, then you can borrow up to $75,000 ($30,000 x 2.5).

What are the terms of the loan?

• Payments are deferred for at least 6 months and possibly up to a year.
• The interest rate will not exceed 4%
• The loan will be for 10 years
• The SBA will guarantee the loan; no collateral is required.
• There is no prepayment penalty

How can you use the loan?

• You can use the funds to:
  • Retain workers: 75% of loan proceeds must be used for payroll!
  • Maintain payroll
  • Business Mortgage payments
  • Business Rent and Lease payments
  • Utility payments
• You must certify that the PPP Loan will be used to support ongoing operations of the business due to the current economic conditions.
• The loan can only be used for expenses incurred between 02-15-2020 and 06-30-2020. Very Short Term!!

Tell me more about PPP Loan forgiveness!

• Only expenses incurred between 02-15-2020 and 06-30-2020 are subject to forgiveness.
• Borrowers, upon receiving PPP Loan proceeds, must immediately hire back furloughed employees and expend funds on payroll costs.
• Payroll costs
• Payments on interest of any business mortgage obligations
• Business rents
• Utilities
• ***** Document, Document, Document *****
  • Keep detailed verification of exactly when and how these funds were used. This is a case where poor bookkeeping can and will hurt you – bad!
  • Be Careful!!

Steve’s Note: having some or all of the ‘PPP Loan’ forgiven will depend in large part upon our ability to prove that these funds were used for the purposes as described above.

Where can you apply for the PPP Loan?

• The bank you normally use is very likely already approved by the SBA.
• Additional lenders will be approved.

There are strings attached
It’s the government. Of course there are strings attached!

Sincerely,

Steve Richardson, CPA

 

 

Newsletter from

Steve Richardson & Company

Certified Public Accountants

April 1, 2020

Small Businesses and Social Distancing

 

To Our Clients and Friends:

The curfew order
A curfew order shutting down ‘non-essential’ small businesses is in effect nationwide. To the best of my knowledge small businesses in Tuscaloosa are in full compliance with these orders. That’s good!

The curfew orders are not voluntary.

Do not lose your business licenses
Law enforcement officers are actively visiting non-compliant small businesses. These officers have the power to permanently revoke business licenses. Thankfully this has not happened in Tuscaloosa but it is happening.

Essential businesses are allowed to stay open
This is not a ‘free-pass’ for essential businesses. We are required to follow certain public health standards and rules.

Our CPA firm is an essential business; even so, we must comply with certain public health standards as does Publix, Lowe’s, and the other essential businesses.

Public health officials in Tuscaloosa and Mayor Maddox have made it crystal clear to me and our CPA firm that we must do better.

Virtual Meetings Only
Mayor Maddox and our public health officials are insisting that as many of our client meetings as possible be done via US Mail, e-mail and by virtual means. They are very serious.

This will not be a hardship for us; our CPA firm has clients in 35 states and 25 foreign counties. We know how to do this. We can take care of you!

Do Not Delay!!!
Do not delay in getting your 2019 tax returns done! Much of the COVID-19 stimulus and tax relief is based on 2019 tax returns and financial data. Especially important: many of the “forgiveness” features related to COVID-19 SBA loans, likewise, depend upon 2019 tax returns. Do Not Delay!

Sincerely,

Steve Richardson, CPA

 

 

Newsletter from

Steve Richardson & Company

Certified Public Accountants

March 31, 2020

The 5th COVID-19 Newsletter

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To Our Clients and Friends:

We asked a local bank for clarification on how a business applies for the Payment Protection Program (PPP) Loan. They have been very helpful but the message the bank is sending is that this is a new and “evolving” program. I do know that the bank is “selling” these loans hard because they make money processing these SBA loans with zero risk to the bank.

Following is what the bank told us
The final qualifying guidelines and application process for the Small Business Administration’s Payment Protection Program (PPP) Loan have not been published. We are asking interested parties to begin the process of gathering information that might be necessary for submitting a request. NO GUARANTY, NO COLLATERAL.

Along with the list of financial and business-related information below, an SBA Borrower Information Form is attached. While we expect the application for the PPP loan to be streamlined. Please take some time to review the information the SBA has historically required for their guarantee loans.

SBA needs the following information to determine if your business qualifies for the PPP loan and to calculate your maximum loan amount:

1. SBA Borrower Information Form (See Attached):
2. Financial Information
   1. Most Recent Business Tax Return (2018 or 2019), or YTD 2019 P&L and Balance Sheet if taxes not done.
   2. YTD Profit & Loss and Balance Sheet dated 02-15-2020

3. Business Ownership/Authorization Documents (Articles of Incorporation, Licenses, etc.)
4. Brief description of how COVID-19 has impacted your business
5. Payroll and Employee Related Expenses:
   1. Payroll reports by month (in total and by employee) for 2019, indicating which employees are full-time and which are part-time
   2. Payroll reports by pay period (in total and by employee) for January-March of 2020, indicating which employees are full-time and which are part-time.
   3. Compensation to any one employee in excess of $100,000 for the prior 12 months
   4. Copies of quarterly 941 reports and state unemployment reports for all of 2019 and Q1 2020
   5. Copy of 2019 940 report
   6. 2019 W-2s for all employees
   7. Payments for group health insurance premiums, from April 1, 2019 to March 31, 2020
   8. Payments to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation from April 1, 2019 to March 31, 2020
   9. 1099s for 2019 for independent contractors that would otherwise be an employee of your business. Do NOT include 1099s for services.
   10. Document the sum of all retirement plan funding that was paid by the Company Owner (do not include funding that came from the employees out of their paycheck deferrals).
       1. Include all employees, including company owners.
       2. 401K plans, Simple IRA, SEP IRAs.

Steve’s Note: The point of this SBA program is employment retention. Detailed payroll data will be required by employee, by pay period, by month, by quarter and by year. This data will need to reconcile with the payroll tax returns as filed. If they do not reconcile, payroll tax reports will need to be amended. I know how to do this stuff, but, frankly, Liz knows how to do it much better that I do. I might pass this task over to Liz.

Sincerely,

Steve Richardson, CPA