SBA issued an Interim Final Rule regarding the Paycheck Protection Program as it relates to the self-employed filing a Schedule C this week. Below is a summary of the guidance and we have also linked a copy of the Interim Final Rule here for reference.

Individuals with Self-Employment Income who File a Form 1040, Schedule C

You are eligible for a PPP Loan if:

1. You were in operation on February 15, 2020.
2. You are an individual with self-employment income (such as an independent contractor or sole proprietor)
3. Your principal place of residence is in the US
4. You filed or will file a Form 1040 Schedule C for 2019.

How to calculate the maximum amount of loan (businesses without employees):

Step 1:  Find the 2019 Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value). If this amount is over $100,000, reduce it to $100,000.  If this amount is zero or less, you are not eligible for a PPP loan.

Step 2:  Calculate the average monthly net profit amount (divide the amount from Step 1 by 12)

Step 3:  Multiply the average monthly net profit amount from Step 2 by 2.5

Step 4:  Add the outstanding amount of any Economic Injury Disaster Loan made between 1/31/20 to 4/3/20 that you seek to refi.

The applicant must provide the 2019 Form 1040 Schedule C, 2019 1099-MISC showing non-employee comp, invoice, bank statements or books of record that establishes they are self-employed.  Applicants must also provide a 2020 income invoice, bank statement, or book of record to establish they were in operation on or around 2/15/20.

How to calculate the maximum amount of loan (businesses with employees):

Step 1:

• Find the 2019 Form 1040 Schedule C line 31 net profit amount (if you have not yet filed a 2019 return, fill it out and compute the value).  If this amount is over $100,000, reduce it to $100,000.  If this amount is zero or less, set this amount at zero.
• 2019 gross wages and tips paid to your employees using 2019 Form 941 taxable Medicare wages and tips from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from taxable Medicare wages and tips; subtract any amounts paid to any individual employee in excess of $100,000 annualized.
• 2019 employer health insurance contributions (health insurance component of Schedule C line 14), retirement contributions (Schedule C line 19), and state and local taxes assessed on employee compensation (state unemployment). Note that owner self-employed health insurance and owner retirement contributions deducted on Schedule 1 are NOT factored into the calculation.

Step 2:  Calculate the average monthly amount (divide the amount from Step 1 by 12)

Step 3:  Multiply the average monthly amount from Step 2 by 2.5

Step 4:  Add the outstanding amount of any Economic Injury Disaster Loan made between 1/31/20 to 4/3/20 that you seek to refi

Applicant must provide 2019 Form 1040 Schedule C and Form 941’s and evidence supporting the health insurance and retirement contributions.

The Proceeds of the PPP loan are to be used for the following:

1. Owner compensation replacement, calculated based on 2019 net profit as described above.
2. Employee payroll costs (as described in first Interim Final Rule)
3. Mortgage interest payments on any business mortgage obligation on real or personal property (NOTE: this is what the rule says but there is no such thing as a mortgage on personal property)
4. Interest payments on any other debt obligations that were incurred before 2/15/20 but such amounts are not eligible for PPP loan forgiveness.
5. Rent and Utilities

The use of loan proceeds is limited to those types of allowable uses for which the borrower made expenditures in 2019.  So, if the expense was not there in 2019 but is an expense for 2020, it may not be used.

What amounts shall be eligible for forgiveness:

1. Payroll costs including salary, wages and tips up to $100,000 of annualized pay per employee (for eight weeks, a maximum of $15,385 per individual) as well as covered benefits for employees (but not owners).
2. Owner compensation replacement calculated based on 2019 net profits as described above, with forgiveness of such amounts limited to eight weeks’ worth (8/52) of 2019 net profit.
3. Payments of interest on mortgage obligations on real or personal property incurred before 2/15/20 to the extent deductible on Schedule C
4. Rent payments on lease agreements in force before 2/15/20 to the extent deductible on Schedule C and utility payments under service agreements dated before 2/15/20.

75% of the amount forgiven must be attributable to payroll costs.

Other items to note in this new guidance:

1. If the individual is a partner in a partnership, they may not submit a separate PPP loan application for themselves as a self-employed individual.  (This pertains to the PPP for the partnership, the individual may apply as self-employed if they have a separate Schedule C)
2. Instead, the self-employment income of general active partners may be reported as payroll costs, up to $100,000 annualized on a PPP loan application filed by or on behalf of the partnership.
3. SBA will issue additional guidance for those individuals with self-employment income who are:
   1. Not in operation in 2019 but who were in operation on 2/15/20, and
   2. Will file of Schedule C for 2020

Individuals with Self-Employment Income who File a Form 1040, Schedule F

In this Guidance issued on April 14^th, it refers to Schedule C’s and not Schedule F.  Farmers tend to incur more gains on the sale of equipment reported on Form 4797 that is not reported on Schedule F.  Therefore, we may see additional guidance from SBA or perhaps the USDA if the PPP loan is calculated on “net farm income”, including these gains or on “net self-employment” income without these gains.

Please reach out to our team if you have questions on this new development. We are always here to help.

The IRS recently announced more extensions in response to the COVID-19 pandemic. In IRS Notice 2020-23, the new extensions now cover individuals, estates, corporations, and others.

It was just last month that the IRS extended the filing and payment deadline for federal income taxes. Normally due on April 15, taxpayers now have until July 15, 2020 to pay and file their federal returns with no late filing or payment penalties.

The new provisions in Notice 2020-23 were released on April 9, 2020 and offer expanded relief to more types of returns, tax payments, and other items. This notice extends a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020, including the second quarter estimated tax payment due June 15^th.  In addition, it also suspends interest, additions to tax and penalties for late filing or late payment until July 15, 2020.

The new Notice includes extending the following filing and payment deadlines:

• Individual income tax payments and return filings on Form 1040, U.S. Individual Income Tax Return, 1040-SR, U.S. Tax Return for Seniors, 1040-NR, U.S. Nonresident Alien Income Tax Return, 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, 1040-PR, Self-Employment Tax Return – Puerto Rico, and 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico);
• Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, U.S. Corporation Income Tax Return, 1120-C, U.S. Income Tax Return for Cooperative Associations, 1120-F, U.S. Income Tax Return of a Foreign Corporation, 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation, 1120-H, U.S. Income Tax Return for Homeowners Associations, 1120-L, U.S. Life Insurance Company Income Tax Return, 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons, 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, 1120-POL, U.S. Income Tax Return for Certain Political Organizations, 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts, 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies, 1120-S, U.S. Income Tax Return for an S Corporation, and 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);
• Calendar year or fiscal year partnership return filings on Form 1065, U.S. Return of Partnership Income, and Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;
• Estate and trust income tax payments and return filings on Form 1041, U.S. Income Tax Return for Estates and Trusts, 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts, and 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts;
• Estate and generation-skipping transfer tax payments and return filings on Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, 706-A, United States Additional Estate Tax Return, 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts, 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations, 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions, and 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust (including the due date for providing such form to a beneficiary);
• Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, filed pursuant to Revenue Procedure 2017-34;
• Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and any supplemental Form 8971, including all requirements contained in section 6035(a) of the Code;
• Gift and generation-skipping transfer tax payments and return filings on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return that are due on the date an estate is required to file Form 706 or Form 706-NA;
• Estate tax payments of principal or interest due as a result of an election made under sections 6166, 6161, or 6163 and annual recertification requirements under section 6166 of the Code;
• Exempt organization business income tax and other payments and return filings on Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e) of the Code);
• Excise tax payments on investment income and return filings on Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, and excise tax payments and return filings on Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the Internal Revenue Code; and
• Quarterly estimated income tax payments calculated on or submitted with Form 990-W, Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations, 1040-ES, Estimated Tax for Individuals, 1040-ES (NR), U.S. Estimated Tax for Nonresident Alien Individuals, 1040-ES (PR), Estimated Federal Tax on Self Employment Income and on Household Employees (Residents of Puerto Rico), 1041-ES, Estimated Income Tax for Estates and Trusts, and 1120-W, Estimated Tax for Corporations.

Receiving these extensions does not require any additional forms or documentation. There is no need to call the IRS or apply for these extensions. They are automatic.

The Notice also provides relief for 2016 unclaimed refunds, extending that deadline to July 15, 2020. In addition, it extended the time for filing and review of petitions in Tax Court.

We are here to help. Please contact our team for questions on these new regulations.