Senate Passes PPP Bill Offering Flexibility on Forgiveness Guidelines

This is not law. On Wednesday, June 3rd, the Senate passed the Paycheck Protection Program Flexibility Act of 2020. The bill was passed in the House last week with large bipartisan support and eases the strict guidelines currently in place to qualify for forgiveness of PPP loan funds. It will now move to President Trump for his signature.

As many recipients of PPP loans are approaching the end of their 8-week Covered Period, the bill offers important guidance and relief to borrowers looking to qualify for forgiveness of the funds. If the bill becomes law, recipients of PPP loans will now have an additional 16 weeks to use the funds for eligible expenses. The bill also provides more flexibility for use of the funds on “non-payroll” expenses.

A few of the major changes to forgiveness requirements appear to be:

  • Extension of the Covered Period from 8 weeks to 24 weeks (or the end of the year, whichever comes first)
  • Lowers the portion of PPP loan funds that must be used for payroll from 75% to 60%, allowing 40% to be used toward other non-payroll, eligible costs such as rent and utilities. There is a potential for no forgiveness (loan to be repaid) if 60% of the loan proceeds are not spent on payroll costs.  This could be a significant change.
  • Increases the maximum payroll amount for the extended Covered Period from $15,385 to $46,154 per employee
  • Extends the Full Time Equivalent (FTE) and Salary/Wage Reduction safe harbor date from June 30, 2020 to December 31, 2020, which allows employers more time to restore their FTE count and Salary/Wage amounts to pre-COVID-19 numbers.
  • Outlines additional FTE reduction exemptions for changes in business activity and allowing exemptions for borrowers who are unable to hire similarly qualified employees
  • Extends the loan term of any funds not forgiven to 5-10 years from 2 years. Please note that for existing loans prior to the passing of this bill, both lender and borrower must agree to the change in loan terms through a refinance of the loan. The interest rate remains 1%.
  • Allows businesses who qualify for loan forgiveness to also defer the employer portion of payroll tax, which would be paid in two installments (50% by 12-31-2021 and 50% by 12/31/2022)
  • Changes the loan repayment deferral period to the date forgiveness is decided rather than 6 months from disbursement
  • The Forgiveness Application must be submitted no later than 10 months from the end of the recipient’s Covered Period.

If President Trump signs the bill into law, PPP loan borrowers will now have to choose to either adopt the new 24-week Covered Period or continue with their original 8-week option. We would advise to look closely at your eligible expenses to date, payroll costs, and your FTE count, among other factors, when making this decision.  There could be more changes forthcoming to the PPP loan program through additional legislation, as well as SBA and Treasury Department guidance.

Due to the changes the bill would introduce, the SBA Forgiveness Application will have to be updated, as well as other specific regulations/calculations from the original law. As the requirements for PPP loan forgiveness continue to evolve, we would suggest submitting your SBA Forgiveness Application at a time where it is most advantageous to your business.

Please contact your trusted Scheffel Boyle team member with questions. We are continually monitoring this situation and will provide updates as news is released. We are always here to help.

Paycheck Protection Program Flexibility Act of 2020 Passed in the House

This is not the law. On Thursday, May 28th, the House passed a bill with large bipartisan support to make it easier for recipients of Paycheck Protection Program (PPP) loans to qualify for forgiveness of the funds. The Paycheck Protection Program Flexibility Act (H.R. 7010) will effectively eliminate many of the hurdles that recipients of PPP loans face.

A few of the major changes to forgiveness requirements include:

  • Extension of the Covered Period from 8 weeks to 24 weeks (or the end of the year, whichever comes first)
  • Lowers the portion of PPP funds that must be used for payroll from 75% to 60%, allowing 40% to be used toward other non-payroll, eligible costs such as rent and utilities.
  • Increases the maximum payroll amount for the extended Covered Period from $15,385 to $46,154 per employee
  • Extends the Full Time Equivalent (FTE) safe harbor date from June 30, 2020 to December 31, 2020, which allows employers more time to restore their FTE count to pre-COVID-19 numbers.
  • Outlines additional FTE reduction exemptions for changes in business activity and allowing exemptions for borrowers who are unable to hire similarly qualified employees
  • Extends the loan term of any funds not forgiven to 5-10 years from 2 years
  • Allows businesses who qualify for loan forgiveness to also defer the employer portion of payroll tax, which would be paid in two installments (50% by 12-31-2021 and 50% by 12/31/2022)

The changes included in this bill will provide some much needed guidance and relief to PPP loan recipients, many of which are small businesses. While this bill has not yet passed the Senate, we remain hopeful that the legislation will be enacted sometime over the next week. The AICPA has released a statement applauding the bill saying, “it looks forward to further action on a final bipartisan bill as the Senate has demonstrated interest”.  There is also a separate bill that has been introduced in the Senate with some variations compared to the bill that passed in the House.

However, we do advise that if you are approaching the end of your 8-week Covered Period to continue complying with the forgiveness requirements that are currently in place.

Our team is monitoring this situation closely and will send out additional information as it is released. Please contact your trusted Scheffel Boyle team member with questions. We are always here to help.

PPP Loan Forgiveness Application and Instructions Update

On May 15th, the SBA released the PPP Loan Forgiveness Application and Instructions. This new guidance clears up a few of the unknown items with PPP loan forgiveness for borrowers and lenders.

Alternative Payroll Covered Period for Payroll Costs

The original Covered Period for loans is defined as an 8-week period from the PPP loan disbursement date. The new Alternative Payroll Covered Period allows borrowers with a biweekly (or more frequent) payroll schedule to elect to calculate eligible payroll costs using an 8-week period that begins on the first day of their first pay period following their PPP loan disbursement date. The original 8-week Covered Period has to be used for non-payroll costs.


Incurred and Paid Guidance

Due to this new guidance, payroll and other costs (such as rent, business mortgage interest, and utilities) can now be incurred OR paid during the Covered Period or Alternative Payroll Covered Period.

Covered Payroll Costs

  • Costs are considered paid on the day that paychecks are disbursed or originates an ACH credit transaction
  • Costs are considered incurred on the day that the employees’ pay is earned.
  • Costs incurred but not paid during the last pay period of the Covered or Alternative Payroll Covered Period are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise payroll costs must be paid during the covered period

Non-Payroll Costs

  • Costs must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date even if the billing date is after the Covered Period.
  • Can’t exceed 25% of the total FORGIVENESS

 

Owner Compensation

For owner-employees, compensation cannot exceed 8 weeks’ worth of 2019 compensation, capped at $15,385 ($100,000 annualized over the 8-week period).


Average Full-Time Equivalent (FTE)

Per the application instructions, FTEs are calculated based on an employee’s average number of hours paid per week divided by 40 and round the total to the nearest tenth. The maximum for each employee is capped at 1.0 FTE. This new guidance also created a simplified method that assigns a 1.0 FTE for employees who work 40 hours or more per week and .5 for employees who work fewer hours.


FTE Reduction Exemptions

Along with the previous exception of the Borrower making a good-faith, written offer to rehire an employee during the Covered Period or Alternative Payroll Covered Period with the employee declining employment, the new exemptions added the following:

  • Any employees who during the Covered Period or Alternative Payroll Covered Period
    • Were fired for cause,
    • Voluntarily resigned, or
    • Voluntarily requested and received a reduction of their hours
  • Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness


Documentation Needed for Forgiveness

A detailed list of documents required for forgiveness is included with the application on page 10, linked here.

 

Forgiveness Reduction Ordering

The order of these reductions was not clear prior to the issuance of the forgiveness application. It is now clear that the salary or wage reduction is considered before the FTE reduction.  This should generally be favorable to employers.


Observations and Unknowns Related to Application and Instructions

Although this new guidance clears up some of the outstanding questions regarding PPP loan forgiveness, there are still questions as to a few issues needed for many borrowers, including:

  • The instructions define the PPP loan amount as the principal amount of the loan only.  Previous guidance stated that accrued interest was forgivable.  Whether this is an error or a reversal from the previous guidance is unknown currently.
  • For payroll costs, the instructions state payroll incurred during the covered period but paid on or before the next payroll date.  It is unknown how this rule would apply to state and local taxes assessed on compensation (SUTA, for example) or retirement contributions which would not likely be paid until after the next payroll date.  Hopefully more guidance is to come.
  • The application appears to add a new, additional safe harbor related to FTE and salary/wage reductions.  In the original guidance, FTE and salary/wage reductions could be corrected by re-hiring or increasing pay no later than 6/30/20 to levels that the employer had at 2/15/20.  The forgiveness application now also allows an FTE and/or salary/wage reduction to be ignored if an employer re-hires or restores pay by the end of the covered period to the same levels when compared to 1/1/20.  There is still some conflicting language in the instructions relating to this.
  • Owner-employees appear to be not included in the FTE reduction calculation.  This will only likely hurt employers when making this calculation as this group was most likely to remain stable.  Hopefully more guidance is to come.
  • Employers have asked whether employee compensation could be increased during the covered period.  We believed that there was no restriction on increasing other than complying with the “no more than $100,000” prorated for period language.  It seems that the “period” is the covered period.  Therefore, we believe that if salary remains at or below $15,385 during the entire covered period, the cost will be forgivable. It should not be necessary to limit the proration to each payroll period.

 

Our team continues to monitor these updates as they are released. Please contact us with questions. We are always here to help.

 

Impact of the CARES Act on Financial Institutions and Specialty Finance Entities

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, and similar measures taken by countries around the world, will have significant impacts on companies’ financial reporting. There are many accounting areas that entities will need to evaluate to determine if adjustments to the financial statements are required or whether additional disclosures are necessary. This is particularly true of accounting for income, taxes and potentially forgivable loans. The following descriptions highlight some of the key financial statement areas that are impacted by the CARES Act to date, pending additional guidance from the federal government and standard setters on implementing the relief provisions:

Download a printable PDF of this information by clicking here!

Highlights of the CARES Act for qualifying entities (FDIC-insured banks and credit unions):

  • Section 4013 of the CARES Act provides the option to not apply ASC 310-40 (TDRs) to a loan modification related specifically to COVID-19 hardships, including the flexibility to not classify the loan as impaired for accounting purposes.
  • Section 4014 of the CARES Act provides optional temporary relief from being required to comply with ASU 2016-13, including the CECL method for estimating allowances for credit losses. For calendar year-end public companies, the election of the deferral must be made in the Form 10-Q for the first quarter of 2020 and would be effective as of January 1, 2020.
  • Section 4012 of the CARES Act directs federal banking regulators to issue an interim rule lowering the Community Bank Leverage Ratio (CBLR) from 9% to 8%, which would be effective until the national emergency is lifted or the end of the 2020 calendar year, whichever comes first.
  • Section 4008 of the CARES Act authorizes the FDIC to guarantee debt issued by banks in excess of the $250,000 limit, effectively reviving a program that was enacted during the 2008 financial crisis.

Highlights of the CARES Act for financial institutions and specialty finance entities:

  • For income tax reporting, the effects of the CARES Act should be recognized in the period of enactment (Q1 2020 for calendar year issuers). Careful consideration should be given to the projections being used for the Annualized Effective Tax Rate (AETR) criteria for the discrete treatment of items versus inclusion in the AETR computation, as well as the impact of ASU 2019-12 and ASU 2017-4.
  • Adjustment to the 2018, 2019 and 2020 net operating loss carryback period from zero to five years and removal of the 80% taxable income limitation for the portion of the respective net operating loss utilized before 2021 are provisions in the CARES Act that may trigger tax accounting implications for financial institutions.
  • Section 4011 of the CARES Act authorizes the OCC to temporarily waive the limit on lending by national banks to non-bank financial firms, effective until the national emergency is lifted or the end of the 2020 calendar year, whichever comes first.

 

Troubled Debt Restructurings:

Section 4013 of the CARES Act provides qualifying entities, insured deposit institutions and credit unions with the option to forgo applying ASC 310-40 to a loan modification related specifically to COVID-19 hardships, including the flexibility to not classify the loan as impaired for accounting purposes. In its April 3, 2020, statement, the SEC clarified that an election to waive application of ASC 310-40 to qualifying entities and loan modifications as described in the CARES Act would be in accordance with GAAP. Therefore, the provisions of Section 4013 for troubled debt restructurings (TDRs) can be applied to both public and private entities that meet the scope described in the CARES Act.

The following are characteristics of loans that are eligible for the Section 4013 TDR relief:

  • Not more than 30 days past due as of December 31, 2019;
  • Qualifying Modification made between March 1, 2020, and ending on the earlier of December 31, 2020 or 60 days after the president terminates the National Emergency issued on March 13, 2020; and
  • Qualifying Modification applies to forbearance agreements, interest modifications, repayment plans and any other similar arrangement that defers or delays the payment of principal or interest.

However, the relief does not apply to borrowers experiencing financial difficulty where concessions may be granted that are not related to COVID-19. We believe the law is to be applied as written and is not to be interpreted or analogized to other situations. For example, a borrower that is delinquent at 12/31/2019 and becomes current before March 1, 2020 is not eligible for Section 4013 election.

On April 7, 2020, the banking regulators issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised) (“Statement”). The Statement includes a discussion on Section 4013 of the CARES Act and clarifies guidance in the Interagency statement issued on March 22, 2020. Loans that do not meet the criteria in Section 4013 should be evaluated as to whether the modified loan is a TDR in accordance with ASC 310-40.

The Statement notes that working with current borrowers on existing loans as part of a program, or individually for creditworthy borrowers experiencing short-term financial or operational issues due to COVID-19, would generally not be considered a TDR. The FASB agreed with these interpretations.

No further TDR analysis is required when the following conditions are met:

  • The modification is in response to the COVID-19 national emergency;
  • The borrower was current (i.e., less than 30 days past due) on its contractual payments at the time the modification program is implemented; and
  • The modification is short term (six months or less).

The Statement includes the following example modifications as meeting the above expedient:

  • Payment deferrals;
  • Fee waivers;
  • Extensions of repayment terms; and
  • Delays in payments that are insignificant.

The Statement also notes that government-mandated modification or deferral programs related to COVID-19 are not in the scope of ASC 310-40. The Statement uses the example of a state program that requires mortgage payment suspension for a specified period of time. The Statement also clarifies that deferrals granted due to COVID-19 should not be reported as past due and/or placed on nonaccrual status because of the deferral, and therefore would not result in a charge-off at that time. However, if additional information becomes available indicating a loan will not be repaid in whole or in part, banks should consider whether the loan is impaired and keep in mind their charge-off policies and the regulatory charge-off guidance.

We have interpreted “at the time a modification program is implemented” to mean when a program is implemented by the institution, and not at the time the specific loan modification occurred.

Note that while Section 4013 is available only to certain private and public entities (e.g., insured deposit institutions, bank holding companies, and affiliates), the Statement is an interpretation of GAAP. As such, entities outside the scope of Section 4013 of the CARES Act (e.g., public and private non-bank financing companies) can also apply the interpretive guidance in the Statement.


Allowance for loan loss considerations:

Loan modifications that are not deemed to be TDRs are also not deemed to be impaired due solely to the modification. Therefore, entities that have not yet adopted ASC 326 (CECL), should first determine if there are other indicators of impairment as noted in ASC 310-10-35 that would require individual credit impairment evaluation. If the loan is not deemed to be impaired, it should be accounted for in accordance with ASC 450. Entities that have adopted CECL will need to evaluate the impact on the loans’ contractual terms, among other considerations.

It’s critical that management considers whether the ALL model assumptions should be updated. For example, due to the widespread deferral programs being implemented, loans will not “track” as past due. If past due reports are usually a significant factor in the ALL model, they may no longer be useful indicators and other data may be considered. Additionally, since loans may appear to be performing, this may have an impact to the loss emergence period (e.g. increasing emergence period).


Interest income recognition on loans with payment deferrals:

At its April 8, 2020, meeting, the FASB staff discussed a technical inquiry where a creditor provided a loan payment deferral to a borrower during which it also waived the accrual of interest. In the fact pattern presented, the loan modification did not represent a TDR under ASC 310-40 and was not accounted for as an extinguishment. Rather, it was considered a continuation of the existing loan. This raises the question as to whether the creditor should establish a new effective interest rate in accordance with ASC 310-20 and continue to recognize interest income during the holiday period, or if it should follow the contractual terms (i.e., not recognize interest income during the holiday period). The staff expressed its view that, in this situation, either method would be acceptable.


Loan servicing and bankruptcy remote securitization trusts:

Servicers of Ginnie Mae or Freddie Mac loan pools are required by the servicing agreements to remit the borrower’s scheduled principal and interest payments to the investors. When borrowers do not make a payment, the servicer advances cash to make up for the difference between the scheduled principal and interest that is remitted to the investor vs. the actual principal and interest payments received from the borrower.

When loans are modified as described above, the borrower may not make payments for up to six months. This situation results in the servicer funding advances to Ginnie Mae and Freddie Mac as required by the servicing agreement, even though the borrower has not made a payment. Depending on the volume of modification activities carried out under the CARES Act or the Statement, there could be significant increases in advances for Ginnie Mae and Freddie Mac servicers.

Additionally, servicers of Ginnie Mae loans have the option to purchase loans out of pools when the borrower has not made payments for three consecutive months (referred to as an Early Pool Buyout, or EPBO). This option is provided to the servicer so that they can make the decision whether to continue to make advances for scheduled principal and interest payments (i.e., advancing cash at the loan pool’s coupon interest rate), or funding the loan using their own cost of funds (which may be less than the loan pool’s coupon interest rate). If the servicer was the transferor of the loan into the Ginnie Mae loan pool, this EPBO is a contingent removal of accounts provision that causes them to regain control over the transferred loan (regardless of whether the option to repurchase is exercised or not). In this situation, the transferor/servicer must account for the loans that are eligible for EPBOs, regardless of whether they actually exercise the option. This may cause a significant increase to the balance sheet of a servicer and may have regulatory capital implications.

 

The Paycheck Protection Program’s impact on financial reporting:

The Paycheck Protection Program (“PPP”) authorized federally guaranteed forgivable loans through the Small Business Administration (SBA) for qualifying small businesses to pay their employees during the COVID-19 crisis. Because the applications for PPP funding began on April 3, 2020, it’s important to note that, for businesses that received a loan, it’s a Q2 2020 event for financial reporting purposes. While we know that 100% of the principal balance is guaranteed by the SBA, there are several questions that regulatory authorities have not addressed at this time:

  • How should the loans be classified on the balance sheet?
  • Is interest guaranteed by the SBA?
  • How should the origination fees received from the SBA be accounted for?
  • How should income be recognized on these loans?

 

Other financial reporting considerations

Temporary Relief to comply with Current Expected Credit Losses (CECL):
Section 4014 of the CARES Act provides an optional temporary relief from being required to comply with ASU 2016-13, including the CECL method for estimating allowances for credit losses. That is, the CARES Act provides for an optional temporary deferral of the required adoption date of ASU 2016-13 until the earlier of the date when the president terminates the COVID-19 national emergency or December 31, 2020. However, the relief only applies to insured depository institutions, as defined in the CARES Act, bank holding companies and their affiliates. The effective date for other entities, including companies in the consumer and retail industry, manufacturing entities and other non-financial institutions, is not affected by the CARES Act.

For calendar year-end public companies, the election of the deferral must be made in the Form 10-Q for the first quarter of 2020 and would be effective as of January 1, 2020. In other words, the option to elect the deferral is not available after the first quarter. On the date that the deferral ends, the provisions of ASU 2016-13 would apply retroactively to January 1, 2020. For example, if the COVID-19 national emergency is declared over on November 5, 2020, ASU 2016-13 would be adopted on that date retroactively to January 1, 2020. If the COVID-19 national emergency is not declared over by December 31, 2020, ASU 2016-13 will be adopted on December 31, 2020 retrospectively to January 1, 2020. As such, reserves for loans existing at January 1, 2020 would be reflected in the cumulative effect adjustment to retained earnings, whereas reserves on loans originated during 2020 will be recognized through the income statement. All calendar year-end public companies (both those electing the deferral and those that do not) would report the adoption of ASU 2016-13 for the full year in their 2020 Form 10-K. During 2021, all 2020 quarters would need to be recast to assume ASU 2016-13 had been adopted as of January 1, 2020.

Considering that the deferred effective date is through an act of Congress, the SEC staff clarified in a public statement dated April 3, 2020, that they would not object to the conclusion that electing the deferral is in accordance with GAAP. Also, on March 27, 2020 (i.e., the effective date of the CARES Act), the Federal Reserve, the FDIC and the OCC issued a joint statement that addresses the interaction between CECL and the CARES Act for purposes of regulatory capital requirements. The joint statement provides an optional extension of the regulatory capital transition for the new credit loss accounting standard, with the issuance of an interim final rule that allows banking organizations to delay the estimated impact on regulatory capital stemming from the implementation of ASU 2016-13 for a transition period of up to five years.

For more information, the FDIC has released a “FAQ for Financial Institutions Affected by the Coronavirus Disease 2019,” including commentary on operational matters surrounding the ALL in the first quarter of 2020.


An excerpt of question 7 in the Operational Matters section has been included below:

First Quarter 2020 Allowance for Loan and Lease Losses or Allowances for Credit Losses. How should financial institutions with borrowers affected by the effects of COVID-19 determine the appropriate amount to report for their allowance for loan and lease losses (ALLL) or allowances for credit losses (ACLs), if applicable, in their first quarter regulatory reports?

For financial institutions that have not adopted FASB Accounting Standards Update (ASU) No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” with loans to borrowers impacted by the effects of COVID-19, it may be difficult at this time to determine the overall effect that the situation will have on the collectability of these loans. Many of these financial institutions will need time to evaluate their individual borrowers, assess the repayment capacity, and other available sources.

For its first quarter regulatory reports, management should consider all information available prior to filing the report about the collectability of the financial institution’s loan portfolio in order to make its best estimate of probable losses within a range of loss estimates, recognizing that there is a short time between the beginning effects of COVID-19 and the required filing date for the first quarter regulatory report. Consistent with generally accepted accounting principles (GAAP), the amounts included in the ALLL in first quarter regulatory reports for estimated credit losses incurred as a result of the effects of COVID-19 should include those amounts that represent probable losses that can be reasonably estimated. As financial institutions are able to obtain additional information about their loans to borrowers affected by COVID-19, estimates of the effect of COVID-19 on loan losses could change over time and revised estimates of loan losses would be reflected in financial institution’s subsequent regulatory reports.

For financial institutions that have adopted FASB ASU No. 2016-13, with financial assets impacted by the effects of COVID-19, it may also be difficult at this time to determine the overall effect that the situation will have on the collectability of these assets. Many of these financial institutions will need time to evaluate their collective assessments on the net amount expected to be collected.

For its first quarter regulatory reports, management should consider all information available prior to filing the report about the collectability of the financial institution’s financial assets in order to make a good faith estimate on the net amount expected to be collected. Furthermore, management should ensure the measurement of expected credit losses includes forward-looking information, such as reasonable and supportable forecasts, in assessing the collectability of financial assets. The FDIC expects financial institutions to make good faith efforts to include its best estimate of expected credit losses within a range of expected loss estimates, recognizing that there is a short time between the beginning effects of COVID-19 and the required filing date for the first quarter regulatory report.

Consistent with generally accepted accounting principles (GAAP), the amounts included in the ACL in first quarter regulatory reports for expected credit losses as a result of the effects of COVID-19 should include those amounts that represent expected credit losses over the remaining contractual term of the financial asset, adjusted for prepayments. As financial institutions are able to obtain additional information about their financial assets affected by COVID-19, estimates of the effect of COVID-19 on credit losses could change over time and revised estimates of credit losses would be reflected in financial institution’s subsequent regulatory reports.

Income tax reporting considerations:

The effects of the CARES Act should be recognized in the period of enactment (Q1 2020 for calendar year issuers). Careful consideration should be given to the projections being used for the Annualized Effective Tax Rate (AETR) criteria for the discrete treatment of items versus inclusion in the AETR computation (e.g., direct and indirect impacts of carryback, change in tax law and movement in the valuation allowance), as well as the impact of ASU 2019-12 and ASU 2017-04.

  • Book recognition of reserves, accruals and impairments related to COVID-19 will likely impact the recognition and measurement of temporary differences and related tax accounting. Accordingly, the following entity fact patterns may trigger material tax accounting implications that management may need to focus on:
  • Impairments to book goodwill with or without an underlying tax basis.
  • Impairments to book intangibles that have historically depended upon reversing taxable temporary differences related to the underlying book intangibles with no tax basis as a source of income to realize existing deferred tax assets.
  • Adoption of ASU 2017-04.
  • Material book adjustments (both individually and in aggregate) to areas outside of goodwill and intangibles to which the applicable tax accounting treatment would differ.

 

How We Can Help

In conclusion, while the COVID-19 pandemic has created significant uncertainty for financial institutions and specialty finance entities, the CARES Act provides some financial reporting and tax relief for those who know how to access it. To that end, CFOs and financial leaders can help their organizations on the path back to growth by leveraging all applicable CARES Act provisions in their accounting strategies, including having familiarity with all relevant financial reporting requirements and deadlines in order to maximize benefits.  Our Financial Institutions Group is always here to help.

Scheffel Boyle Partners with AGCI for Webinar: PPP Loans, Tax Update, and More

We are proud to partner with the Association General Contractors of Illinois (AGCI) for a free and informative webinar for the construction industry.

Join us as our team shares their expertise on the various relief programs offered in response to the COVID-19 pandemic. Topics of discussion include PPP loans and forgiveness, tax updates due to the CARES Act, SBA loan programs, and much more.

Click here to register. This webinar is offered at no cost, but registration is required.

Download the flyer here

 

 

Scheffel Boyle Partners with STL Agribusiness Club for Webinar

We are proud to partner with the St. Louis Agribusiness Club for a free and informative webinar.

Join us as our team shares their expertise on the various relief programs offered in response to the COVID-19 pandemic. Topics of discussion include PPP loans and forgiveness, Schedule F and tax updates, SBA loan programs, and much more.

Click here to register. This webinar is offered at no cost, but registration is required.

Download the flyer here!

 

 

Scheffel Boyle Partners with SIBA for Webinar: PPP Loans, Tax Update, and More

We are proud to partner with Southern Illinois Builders Association for a free and informative webinar for the construction industry.

Join us as our team shares their expertise on the various relief programs offered in response to the COVID-19 pandemic. Topics of discussion include PPP loans and forgiveness, tax updates due to the CARES Act, SBA loan programs, and much more.

Click here to register. This webinar is offered at no cost, but registration is required.

Download the flyer here!

 

 

FREE WEBINAR: Status of PPP Loans, Tax Credits & Deferrals, and SBA Loan Programs

Join us as our team shares their knowledge and expertise on the various relief programs offered in response to the Coronavirus pandemic. Topics of discussion include PPP loans and forgiveness, tax updates due to the CARES Act, SBA loan programs, and much more.

Click here to register. There is no fee to attend the webinar, but registration is required. This event is open to the first 500 who register, so sign up today!

Download the flyer here

What Should You Do To Return a Stimulus Payment?

The Treasury Department announced today that stimulus checks made in error should be returned to the IRS.

In this newly released guidance, the IRS confirmed on Wednesday that some economic impact payments were indeed sent by mistake to nonresident aliens, incarcerated people, and deceased taxpayers. It’s now asking those recipients, or their family members, to return the money.

In addition, a change in filing status between years could cause an error in stimulus payments received, but no official guidance on repayment has been issued.

You should return the economic income payment (EIP) as described below:

If the payment was a paper check:

  1. Write “Void” in the endorsement section on the back of the check.
  2. Mail the voided Treasury check immediately to the appropriate IRS location listed below.
  3. Don’t staple, bend, or paper clip the check.
  4. Include a note stating the reason for returning the check.


If the payment was a paper check and you have cashed it, or if the payment was a direct deposit:

  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.
  2. Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (social security number,  or individual taxpayer identification number) of the recipient of the check.
  3. Include a brief explanation of the reason for returning the EIP.


For your paper check, here are the IRS mailing addresses to use based on the state:

If you live in… then mail to this address
Maine, Maryland, Massachusetts, New Hampshire, Vermont Andover Refund Inquiry Unit
1310 Lowell St Mail
Stop 666A
Andover, MA 01810
Georgia, Iowa, Kansas, Kentucky, Virginia Atlanta Refund Inquiry Unit
4800 Buford Hwy
Mail Stop 112
Chamblee, GA 30341
Florida, Louisiana, Mississippi, Oklahoma, Texas Austin Refund Inquiry Unit
3651 S Interregional Hwy 35
Mail Stop 6542
Austin, TX 78741
New York Brookhaven Refund Inquiry Unit
5000 Corporate Ct.
Mail Stop 547
Holtsville, NY 11742
Alaska, Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, Utah, Washington, Wisconsin, Wyoming Fresno Refund Inquiry Unit
5045 E Butler Avenue
Mail Stop B2007
Fresno, CA 93888
Arkansas, Connecticut, Delaware, Indiana, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, Ohio, West Virginia Kansas City Refund Inquiry Unit
333 W Pershing Rd
Mail Stop 6800, N-2
Kansas City, MO 64108
Alabama, North Carolina, North Dakota, South Carolina, South Dakota, Tennessee Memphis Refund Inquiry Unit
5333 Getwell Rd Mail
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IRS Notice 2020-32 & PPP Loan Updates

IRS Disallows Tax Deductions for Eligible PPP Expenditures

On April 30th, the IRS issued Notice 2020-32, providing guidance regarding the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a covered loan pursuant to the Paycheck Protection Program (PPP).

The PPP was established by Section 1102 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under the PPP, a recipient of a covered loan may use the proceeds to pay certain expenditures including:

  1. payroll costs,
  2. certain employee benefits relating to healthcare,
  3. interest on mortgage obligations,
  4. rent,
  5. utilities, and
  6. interest on any other existing debt obligations

Under the CARES Act, if certain conditions are met, a recipient of a covered loan can receive forgiveness of the loan (covered loan forgiveness) in an amount equal to the eligible expenses paid in the following eight-week “covered period”, beginning on the covered loan’s origination date.

If the income associated with the forgiveness is excluded from gross income under the CARES Act, the Notice clarifies that no deduction will be allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan.

Our team can assist in answering questions that may arise from the Notice as there may be other unresolved questions. While the outcome of the analysis provides a less than desirable result for taxpayers by effectively eliminating the income tax benefit of the exclusion from gross income, this Notice resolves a principal area of uncertainty in the tax treatment of eligible expenses.

 

 

Other PPP Loan Updates

 

Update on farmers filing Schedule F

  1. SBA released Q&As on 4/24/20 and 4/26/20 which discussed how to calculate the maximum PPP loan by business type. This included guidance on farmers filing a Schedule F.
  2. Schedule F farmers are to calculate payroll costs in the same way that Sch C filers calculate that number. That is, using net farm income as reported on line 34 of the Schedule F.
  3. Note that there is no provision currently to allow farmers to use 4797 gains on equipment exchanges. If further guidance is issued on this topic, we will let you know.
  4. Agricultural and other forms of cooperatives are eligible for PPP loans as long as other eligibility requirements are met.

 

Update on Partnership PPP loan calculation

  1. SBA released a Q&A on 4/24/20 that addresses how partnerships are to calculate the maximum PPP loan amount.
  2. Partnerships use the partners’ 2019 net earnings (not loss) from SE as reported in box 14a of the partners’ K-1s. This box includes guaranteed payments.  This is the payroll cost amount as it relates to partners.
  3. The payroll costs for all the partners of the partnership is reduced by any §179 deduction claimed, unreimbursed partnership expenses, and depletion on oil and gas properties. This result is multiplied by .9235 and limited to $100,000 for each partner.  Note – this is more restrictive as the guidance is requiring a reduction to 92.35% of earnings.  This is not required for Sch C and Sch F applicants.
  4. The payroll costs in 3. for the partners is then added to the following.
    • 2019 employee gross wages (before employee pre-tax deductions), limited to $100,000/employee
    • 2019 employer paid health insurance not included in gross wages included Form 1065, line 19. If not on line 19, include employer paid health insurance reported elsewhere on return.
    • 2019 employer retirement contributions not included in gross wages (Form 1065, line 18)
    • 2019 employer state and local taxes assessed on employee comp (SUTA for example)
  5. Amounts in lines 3. and 4. above are totaled. The result is divided by 12 and multiplied by 2.5
  6. Add the result in line 5. above to any outstanding EIDL loan made between 1/1/20 and 4/3/20.

What Information to Start Accumulating

  1. 2019 Comparison Period data (2/15/19 – 6/30/19)
    1. Payroll calendar during that time frame (weekly, semi-monthly, etc.)
    2. Number of full-time employees for each pay period during that time frame
    3. Total variable hours by all non-full-time employees for each pay period during that time frame
  1. 2020 Comparison Period data (1/1/20 – 2/29/20)
    1. Same date as in 4.a. above
  2. Rehire Eligibility Period data (2/15/20 – 4/26/20)
    1. Same data as in 4.a. above
  3. Covered Period data (date of loan – 8 weeks later)
    1. Same data as in 4.a. above
  4. FTE increases between 4/26/20 and 6/30/20

 

Interpretations and updates regarding these new relief programs are released almost daily. Our team continues to monitor the guidance and changes issued by the various government entities. Please let your Scheffel Boyle team member know if you have questions regarding your specific situation. We are always here to help.