To provide much needed assistance and remove PPP expense ambiguity, the House and Senate voted on December 21, 2020 in favor of the Consolidated Appropriations Act, 2021, sending the measure to the President who is expected to sign. Highlights follow:

PPP Updates and Changes

• Businesses that received PPP loans will be allowed to deduct the expenses paid by those loans as the legislation overturns the IRS position that the expenses were not deductible.
• Additional PPP loans will be available for first-time qualified borrowers from the following groups; businesses that have less than 500 employees that are eligible for SBA 7(a) loans; sole-proprietors, independent contractors and eligible self-employed individuals; Non-profits, including churches, and certain accommodation and food services operations with fewer than 300 employees per physical location
• Previous PPP recipients may apply for another loan provided that they have 300 or fewer employees, have or will have used the full amount of their original PPP loan and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
• The calculation of the loan amount will be the same as the first round using 2.5x the average monthly payroll costs prior to the loan or calendar year. However, certain hotel and restaurants can get up to 3.5x their average monthly payroll costs.
• Loans will be capped at $2M as opposed to $10M in the first round.
• The forgiveness parameters are the same as those from August and require that 60% of the funds to be spent on payroll
• The legislation requires a new simplified loan forgiveness process for loans of $150,000 and less; repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their forgiveness amount and includes support for first and second time PPP borrowers with 10 or fewer employees, borrowers that have become recently eligible and community lenders.

Other Business Provisions

• 100% business meal deduction will be allowed as long as the expense is provided by a restaurant and incurred after December 31, 2020 and expires December 31, 2022.
• The legislation also provides $15 billion for independent movie theaters and cultural institutions and $20 billon for targeted grants through the Economic Injury Disaster Loans (EIDL) program.

Individual Provisions

• A second set of $600 stimulus checks for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as an additional $600 for each child dependent. There will be a reduction in the benefit as income exceeds these amounts.
• The legislation extended unemployment benefits up to $300 per week and will start December 26, 2020 and run through March 14, 2021.
• The bill extends the Pandemic Unemployment Assistance (PUA) program with expanded coverage for contract and gig workers, and the Pandemic Emergency Unemployment Compensation (PEUC) program that provides additional weeks of federally funded unemployment benefits to individuals whose need surpasses their states benefits have been extended.
• The moratorium on evictions that was slated to expire on December 31, 2020 has been extended to January 31, 2021 and the legislation has set aside $25 billion in emergency assistance for renters.

Other Provisions

• Colleges and schools benefit with $82 billion ear marked for HVAC repair and replacement to reduce the risks of infections and reopen classrooms and the legislation also includes $10 billion for child-care assistance.
• The bill provides $45 billion for transportation related assistance including additional support for airliner employee and contractor support as well as funds for transit, highways, intercity buses, airports and Amtrak.
• The bill extends or makes permanent certain tax credits or deductions set to expire at December 31, 2020.

This is great news as we end 2020. If you need assistance or have any questions on the new COVID-19 Emergency relief Package, please call your CironeFriedberg professional. You can reach us by phone at 203-798-2721 (Bethel), 203-366-5876 (Shelton), or 203-359-1100 (Stamford), or email us at info@cironefriedberg.com.

On August 4th, the SBA issued additional guidance on the PPP loan forgiveness calculations in the form of a FAQ sheet.  Click here to access the full SBA document. We have highlighted some of the key points below.

General

• Sole proprietors, independent contractors, or self-employed individuals with no employees (no employees at the time of application as well) should complete the Loan Forgiveness Application 3508EZ.
• Borrowers must submit their forgiveness application within 10 months of the last day of the covered period. The borrower is not required to make any payments on the loan until the forgiveness amount is remitted to the lender by the SBA.
  • If the borrower receives full forgiveness, no payments are due.
  • If the borrower does not receive full forgiveness, the remaining balance must be paid by the borrower by the maturity date of the loan, including any accrued interest from the receipt of the loan to the date of any SBA forgiveness.

Payroll Costs

• Payroll costs incurred prior to the covered or alternative period but paid within the covered or alternative period are eligible for forgiveness.  In addition, payroll costs incurred during the covered or alternative period but paid after the last date of the covered or alternative period are also eligible for forgiveness.  This applies to only payrolls paid bi-weekly or on a more frequent basis.
  • Example 1 – Covered period April 20th – Oct 4th with the first payroll period ending April 18th, paid April 24th.  The payment on April 24th is within the covered period and eligible.
  • Example 2 – Covered period April 20th – Oct 4th with the last payroll period ending Oct 4th, paid Oct 9th.  The payment on Oct 9th is outside of the covered period, but eligible.
• Borrowers paying payroll less frequently than bi-weekly, such as semi-monthly or monthly, will need to calculate payroll costs for partial pay periods. 

** Reminder the covered period or alternative period cannot extend past December 31, 2020.

• Payroll costs include all cash compensation including salaries, tips, commissions, bonuses, and hazard pay up to $100,000 on an annualized basis.
• The employer portion of health care benefits paid or incurred by the borrower during the covered or alternative period is eligible for forgiveness, as long as premiums are paid prior to the next premium date.  The employee’s share of health insurance withheld from pay is not included for forgiveness.
• Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the covered or alternative period.
• Compensation for owners of a business are capped at $15,385 if using the 8-week covered period or $20,833 for the 24-week covered period.  Forgiveness varies by the type of business:
  • C Corporation   
    • Compensation up to 2.5/12 of his or her 2019 cash compensation (limited to $100,000 of 2019 compensation).
    • Employer state and local taxes paid by the borrower.
    • Employer contributions for their health insurance.
    • Retirement contributions capped at 2.5/12 of the 2019 employer retirement contribution.
  • S Corporation   
    • Compensation up to 2.5/12 of his or her 2019 cash compensation (limited to $100,000 of 2019 compensation).
    • Employer state and local taxes paid by the borrower
    • Retirement contributions capped at 2.5/12 of the 2019 employer retirement contribution.
    • Employer contributions for health insurance is not eligible for owner/employees with at least a 2% stake in the business, including employees who are family members of at least 2% owner.
  • Self-employed Schedule C (includes sole proprietors, self-employed individuals, and independent contractors)     
    • Compensation is limited to up to 2.5/12 of his or her 2019 net profit as reported on IRS Form 1040 Schedule C line 31 (limited to $100,000 of 2019 compensation).
      • For a new business, estimate 2020 Schedule C.
    • Unlike C Corporations and S Corporations, employer state and local taxes, retirement contributions, and employer contributions for health insurance are not eligible for forgiveness.
  • General Partners
    • Compensation is limited to 2.5/12 of their 2019 net earnings from self-employment that is subject to self-employment tax, which is computed from 2019 IRS Form 1065 Schedule K-1 Box 14a (reduced by Box 12 Section 179 expense deduction, unreimbursed partnership expense deduction on their IRS Form 1040 Schedule SE, and depletion claimed on oil and gas properties) * 0.9235 (limited to $100,000 of 2019 compensation).
    • Employer state and local taxes, retirement contributions, and employer contributions for health insurance are not eligible for forgiveness.

Non-Payroll

• Interest on loans secured by a mortgage on real or personal property is eligible for forgiveness (includes auto loan).
• Leases and mortgages in place prior to February 15, 2020, and renewed subsequent to that date are considered as existing prior to February 15, 2020, and, therefore, eligible for forgiveness.
• Transportation fees refers to the transportation or utility fees assessed by state and local governments.

Loan Forgiveness Reductions

• Borrowers are not subject to an FTE reduction in the following circumstances:
  • Inability to rehire individuals who were employees of the borrower on February 15, 2020 (such as employee declined an offer to return to work).
  • Inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020.
  • Employers will need documentation such as written offer to rehire an individual, written record of the offer’s rejection, written record of efforts to hire similarly qualified individual.
• To calculate the reduction in forgiveness for reductions in employee salary or hourly wage:
  • Employee works the same hours at reduced pay.
  • Total salary reduction over the 25% threshold * 8- or 24-week period used for forgiveness / 52 weeks.
  • Example – $52,000 salaried employee reduced to $36,400 while working the same hours using a 8-week covered period
    • Total reduction = $15,600
    • 25% reduction original salary = $13,000
    • Excess reduction = $2,600 ($15,600-$13,000)
    • $2,600 * 8-week covered period / 52  = $400 forgiveness reduction
  • If the reduction is restored by December 31, 2020, there is no forgiveness reduction.
  • A reduction in forgiveness does not apply to an hourly employee whose hours have decreased during the covered period.  The reduction applies only if their hourly rate was decreased by more than 25%.

CironeFriedberg CironeFriedberg’s primary client base is in Connecticut and neighboring Dutchess, Putnam, and Westchester counties in New York. The firm was established in 2016 with the merger of Bethel-based Equale & Cirone, LLP, established in 1999 and Bridgeport-based Friedberg, Smith & Co., PC, founded in 1945. Services include: Tax, Accounting & Assurance, Consulting, Forensic Valuation and Litigation Support.

If you have any questions, please call your CironeFriedberg professional.  You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.

Has your Company achieved full forgiveness of your Paycheck Protection Program (PPP) and you are left wondering, now what?  You are not alone, and experts are saying there is no rush to apply for forgiveness either.  The SBA has not yet updated the loan forgiveness applications to reflect the 5-week application deadline to August 8^th, nor have the FAQs been updated to provide Borrowers with additional guidance.  There are still many questions surrounding FTE calculations, what can be included as utility expense, clarification for self-employed individuals, etc.  The SBA has also indicated it will not start accepting forgiveness applications from lenders until a new software-as-a-service platform goes live August 10^th.  Borrowers have 10 months from the last date of the covered period to apply for forgiveness.  If a forgiveness application is not filed prior to 10 months after the last date of the covered period, the amount advanced turns into a loan. 

What is the delay with the FAQs?  With the ever changing environment and rise in COVID cases, Congress is debating a new round of COVID-19 relief, which would be a more targeted effort.  The SBA  does not want to release the updated FAQs until President Trump signs the new relief legislation.  Congress is working to finalize the new relief package prior to their recess starting on Aug 8^th.  A new relief package could result in changes to the forgiveness application which could result in delays for the new software-as-a-service platform.  There are even some reports that Congress is considering automatic forgiveness for some of the smaller loans.  Stay tuned, CironeFriedberg will keep you updated as things progress over the next few weeks.

CironeFriedberg CironeFriedberg’s primary client base is in Connecticut and neighboring Dutchess, Putnam, and Westchester counties in New York. The firm was established in 2016 with the merger of Bethel-based Equale & Cirone, LLP, established in 1999 and Bridgeport-based Friedberg, Smith & Co., PC, founded in 1945. Services include: Tax, Accounting & Assurance, Consulting, Forensic Valuation and Litigation Support.

If you have any questions, please call your CironeFriedberg professional.  You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.

The coronavirus pandemic has had various effects on not-for-profits including Paycheck Protection Program (PPP) issues, budgeting issues, and even accounting challenges.

Following are some issues for not-for-profit preparers, auditors, and board members to keep in mind as their organizations work to chart their course in this challenging environment.

PPP Loan Forgiveness

Documentation is key in PPP forgiveness.  The expansion of the PPP covered period from eight weeks to twenty-four weeks has relieved many not-for-profits’ concerns about getting full loan forgiveness.  In fact, rather than having to include other forgivable expenses, many not-for-profits will be able to account for their full forgiveness amount with payroll costs. Documentation of payroll costs needs to be accurate and detailed to ensure the forgiveness criteria are met.

Accounting for PPP Funds

According to AICPA Technical Question and Answer guidance, a not-for-profit’s financial statement accounting for PPP funds may be accounted for by one of two methods — forgiveness/conditional contribution or debt.  Management will need to make key judgments to determine the best path to follow.

If a not-for-profit plans to pursue forgiveness, the funds may be accounted for as either debt or a conditional contribution.  If a not-for-profit does not plan to request forgiveness, they should account for PPP funds as debt.  Most not-for-profits are choosing the forgiveness/conditional contribution approach.

The other accounting issue is how to balance PPP funding with other grant funding sources. “Double-dipping” is not permitted. Not-for-profits will not be permitted to use PPP funds for the same expenses that are being paid with other government funds. Therefore, the tracking of expenses reported for PPP forgiveness need to be properly planned to ensure that the same payroll is not claimed as an expense in two places.

Not-for-profits with fiscal year ends of June 30, July 31, or August 31 may have more difficulty because their loan forgiveness will most likely occur in the fiscal year after the covered period. Their covered period may also span two fiscal years. It will be necessary to plan what expenses in each fiscal year will be allocated to the PPP forgiveness to ensure there is no double dipping and to minimize return of government grant funds.

Budgeting and Operations

Another area of concern is budgeting and planning for the next year.  What events will happen live?  What events can be held virtually?  Performing arts organizations need to determine when they can anticipate live events again, whether they can have them virtually, or whether they need to be cancelled. 

While determining the answers to questions like these, management should conduct scenario planning to guide their strategies for the coming months and year ahead.  Some not-for profits are preparing two or three different budgets and cash flow management scenarios to be able to adapt to the changing financial environment.

CironeFriedberg CironeFriedberg’s primary client base is in Connecticut and neighboring Dutchess, Putnam, and Westchester counties in New York. The firm was established in 2016 with the merger of Bethel-based Equale & Cirone, LLP, established in 1999 and Bridgeport-based Friedberg, Smith & Co., PC, founded in 1945. Services include: Tax, Accounting & Assurance, Consulting, Forensic Valuation and Litigation Support.

If you have any questions, please call your CironeFriedberg professional.  You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Stamford), or email us at info@cironefriedberg.com.