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Surly Thread of Business Owners/Managers, Etc. & Current Business Climate

VABuckeye

By VABuckeye
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Both Tacos

Both Tacos 1827

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Has anyone heard any verifiable information from the IRS regarding taxes on PPP funds?
I had a call with my CPA last week about the PPP and tax implications.  Seems like that is still up in the air.  No news.  He said that he didn't think there would be clarification until after the inauguration as there would probably be some better language in a second round of PPP funds (even if we don't qualify for those) that would set the precedent from a tax perspective.  Worst case scenario, we rat-holed 30% of our PPP into a separate account (out of sight... out of mind) in the event that taxes are due on those funds.  If not, we pay off several financed vehicles and invest at a much faster rate on some of our pending 2021 capital purchases.  FYI, we're 99.99% confident that our PPP is going to be 100% forgivable.  
'
Hmmm, not sure what kind of taxable event it will come out as. I would think it would fall under something of a grant but thinking about it there was a "loan" debt but that debt was forgiven so I don't think there is a tax against it.
I just leave it up to our CFO to deal with but good on you for putting something back just in case.
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Spaulding Smails
Spaulding Smails

Subscribed.  I've posted in two of the other threads, but I have a construction (residential and commercial) and facility maintenance company in Austin.  65 employees currently.  80% of my workforce c

MaclovioBrown
MaclovioBrown

CaboWabo and I run a small bank in South Texas with low workload on PPP approvals. PM if stuck in big bank queue and at risk of missing first tranche of funding. We can get you an SBA loan number in a

VABuckeye
VABuckeye

Bam! We were just awarded the Federal Reserve project we bid back in February.

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Cheeseweasel

Cheeseweasel 26439

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12 hours ago, Spaulding Smails said:

I had a call with my CPA last week about the PPP and tax implications.  Seems like that is still up in the air. 

Our CPA said that it's "essentially taxable" because you can't include the items used in forgiveness as expenses. He filed for our business without including it and is watching to see the hundreds of lawsuits fighting this ruling. It's obvious this was NOT what congress intended, but the fucking IRS is their own entity and seems to run their own game. 

 

Here's a good article explaining: https://www.businessreport.com/business/irs-if-you-received-ppp-money-you-cant-deduct-related-expenses-from-2020-tax-return

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Spaulding Smails

Spaulding Smails 1610

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10 minutes ago, Cheeseweasel said:

Our CPA said that it's "essentially taxable" because you can't include the items used in forgiveness as expenses. He filed for our business without including it and is watching to see the hundreds of lawsuits fighting this ruling. It's obvious this was NOT what congress intended, but the fucking IRS is their own entity and seems to run their own game. 

 

Here's a good article explaining: https://www.businessreport.com/business/irs-if-you-received-ppp-money-you-cant-deduct-related-expenses-from-2020-tax-return

This was how it was explained to me as well.  The forgivable loan isn't taxable, but you can't claim the expenses that it was used to offset.  So, essentially, your expenses shrunk by the value of the forgivable portion of the PPP loan, and you'll be taxed on the extra "profit" as a result.

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Cheeseweasel

Cheeseweasel 26439

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3 minutes ago, Spaulding Smails said:

This was how it was explained to me as well.  The forgivable loan isn't taxable, but you can't claim the expenses that it was used to offset.  So, essentially, your expenses shrunk by the value of the forgivable portion of the PPP loan, and you'll be taxed on the extra "profit" as a result.

Uncle Same gonna get his share. It's ridiculous and I hope Congress addresses it. 

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Brew

Brew 3049

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Today it’s taxable, tomorrow who knows. The current legislation being batted around has it corrected to non taxable but that specific piece has been in discussion since May. It will eventually get changed to non taxable I believe, but it makes tax planning a bitch right now.

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Brew

Brew 3049

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Legislation getting voted on includes making PPP related expenses deductible essentially making the PPP funds nontaxable. It’s a boon for those businesses that ended the year up and also needed relief for those that didn’t.

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VABuckeye

VABuckeye 2481

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New Stimulus Package

PPP language begins on page 25.

From an email I received from our friend at that little bank in south Texas.

Eligible Entities Have a Second Chance to Receive a PPP Loan

Many borrowers have requested a second round of PPP loans, and many potential borrowers who were unable to receive a PPP loan during the first round would like to have access to a PPP loan.  The proposed bill allows new and old borrowers to receive a PPP loan if they meet the requirements of an “eligible entity.”  

An “eligible entity” will need to satisfy the “Necessity Test” that is discussed in my blog post dated May 4, 2020 “Was Your PPP Loan ‘Necessary’? If Not, There Could Be Horrific Repercussions” as of the time of applying for this new second loan.  This test, which is based upon whether the loan is “necessary to support the on-going operations of the applicant” will be hard to meet by businesses that have survived one or two hard quarters but are now making ends meet while waiting for the vaccines to clear our economy up.  The test will clearly not be passed by a high percentage of PPP borrowers who will otherwise qualify, and will present a very important issue to be carefully addressed with the borrower’s CPA, financial and legal advisors.  While the SBA has announced that it will not question the necessity issue for those who have aggregate borrowings not exceeding $2 million, other agencies, or even whistleblowers, may, and the fact that a second loan has been received will not be kept confidential.     

Assuming that the necessity test will be met, the next question is whether the PPP borrower is an “eligible entity” which the bill defines as a Schedule C taxpayer (but apparently not a Schedule E landlord or a Schedule F farmer), an LLC or other entity treated as an S corporation or partnership that meets the following requirements:

  1. The borrower must demonstrate that there was a 30% reduction from the gross receipts of the entity during the same quarter in 2019.
  2. For the purposes of this 30% rule, gross receipts will include all revenues from the normal operation of the business before subtraction of expenses but will not include amounts borrowed, including amounts received for PPP loans. 
  3. The borrower must employ no more than 300 employees, or meet an alternative size standard.

The proposed Rubio-Collins bill (“HEALS Act”) that did not pass, would have required a 50 percent reduction from gross receipts, so this change to 30 percent in the “Emergency Coronavirus Relief Act of 2020" will allow PPP loans to reach a greater number of potential borrowers.   

For purposes of the above 30% reduction in gross receipts test, borrowers who were not in business during the first, second, or third quarter of 2019 (January 1 - September 30), but were in business during the fourth quarter of 2019 (October 1 - December 31), can compare the first, second, or third quarter of 2020 (January 1 - September 30) to the fourth quarter of 2019.  

If the entity was not in business during 2019 but was in business by February 15, 2020, then such borrower can compare their gross receipts during the second or third quarter of 2020 (April 1 - June 30) to the first quarter of 2020 (January 1 - March 30) to see if they qualify.

Please contact us with questions as they may arrive and we will do our best to get you an answer. Until then, standby for future updates.

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shakahorn

shakahorn 1656

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Thanks for the link.  So as I read that, am I correct that as long as you show a 30% reduction in any of quarters 1-3, you are eligible?

Also, since there are no stupid questions, am I correct in that both (i) a forgiven PPP loan is not considered income and thus not taxable; AND, (ii)the costs covered by the PPP loan can be expensed?  Or is my AND really an OR?

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Cheeseweasel

Cheeseweasel 26439

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41 minutes ago, shakahorn said:

Thanks for the link.  So as I read that, am I correct that as long as you show a 30% reduction in any of quarters 1-3, you are eligible?

Also, since there are no stupid questions, am I correct in that both (i) a forgiven PPP loan is not considered income and thus not taxable; AND, (ii)the costs covered by the PPP loan can be expensed?  Or is my AND really an OR?

If the bill passes are written, yes.

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MaclovioBrown

MaclovioBrown 100

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More details emerge on PPP 2.0. Our existing group is queued up for reload assuming each business qualifies under new guidelines. PM me or CaboWabo if you want to take the 2.0 ride with us. We’ve relaxed our PPP cap and can comfortably assist more:

COVID RELIEF BILL DETAILS EMERGE AS VOTING BEGINS ON THE HILL

1221OMNIBUS.PNG?cb=659548
 

  

5,593. That is the number of pages in the "Consolidated Appropriations Act, 2021" -- the COVID relief bill that has passed the US House and is likely to pass the Senate later this evening. It is thought to be the largest bill in Congressional history. There are A LOT of nooks and crannies in a bill of this length, so it will take some time to comb through it to identify all the banking-related impacts. However, here are key elements of the legislation:

  

HIGHLIGHTS

  

Small Business Provisions:

What will the second round of PPP look like?

  

● First time applicants will be allowed;

● Previous PPP borrowers are eligible for “PPP second draw” loans if they can demonstrate at least a 25% reduction in gross receipts;

● Borrowers in the Accommodations and Food Services industries (NAICS Code 72) may receive loans up to 3.5X average monthly payroll costs, all other industries will be at the original 2.5X monthly payroll costs calculation;

● Lender compensation will be tiered: for loans up to $50,000, the lender process fee will be the lesser of 50% of the principal amount or $2,500; for loans between $50,000-$350,000, the lender fee will be 5%; and for loans $350,000 and above, the lender fee will be 3%;

● Simplified forgiveness for loans of $150,000 and below. While this provision isn’t exactly the language found in Sen. Cramer’s S. 4117, he was able to get the one-page attestation and final language much closer—definitely an improvement; 

● PPP program is set to expire on March 31, 2021;

● The bill repeals the EIDL Advance Deduction and directs the SBA to issue rules that ensure borrowers are made whole if they received forgiveness and their EIDL was deducted from that amount.

  

PPP Timing?

We do not know when the PPP pipeline will be reopened. We do know that the SBA must publish the one-page loan forgiveness attestation within 24 days of enactment. We will continue to update you as information becomes available.

  

More details on these items and fee information contained in the bill's small business provisions can be found HERE.

 

 

 

 

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VABuckeye

VABuckeye 2481

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22 hours ago, shakahorn said:

Thanks for the link.  So as I read that, am I correct that as long as you show a 30% reduction in any of quarters 1-3, you are eligible?

Also, since there are no stupid questions, am I correct in that both (i) a forgiven PPP loan is not considered income and thus not taxable; AND, (ii)the costs covered by the PPP loan can be expensed?  Or is my AND really an OR?

The reduction of any quarter has been reduced to 25%.

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Cheeseweasel

Cheeseweasel 26439

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1 hour ago, orange dream said:

Is the deductibility of expenses related to PPP forgiven amounts being addressed in this bill? If not, what is the latest expectation for that?  I know until further notice they are to be treated as non-deductible but I keep thinking hoping that will change soon.

Yes. Essentially this bill makes it "tax free"

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Brew

Brew 3049

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ERC has been opened up for PPP participants. That could be sizable credit numbers depending on the timing of PPP funding for some of you. It’s a colossal pain in the ass the way they have done it, but what isn’t with any of the tax laws the last 10 months.

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MaclovioBrown

MaclovioBrown 100

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22 hours ago, VABuckeye said:

I'll bet MaclovioBrown is having quite the day entering all of those applications.

Amen VA.  Your two are locked in and the new portal is better but still causing fits. Biggest problem is that the original SBA 10-digit loan number is needed for input and approval and many of the big banks fail to reference this number in any of their documentation. We have stack of apps in limbo over the long weekend. 
That said, we have a small backlog and can easily get any of you second draw applicants secured over the weekend. Big banks start on Tuesday and who knows where you will stand in the queue of thousands. 
Shoot me or CaboWabo a PM and we will forward our package to you. 

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T’Boo Ted Marshall

T’Boo Ted Marshall 2779

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Anyone familiar with the set up of MOB/WOB designations?
Our entity is a partnership made up of 2 Managing Entities.

Each owns 50% of the partnership.
Within one entity it is 50/50 husband and wife, both Caucasian.
Other entity that is also 50/50 is Hispanic husband and Caucasian wife.

All are operating in the partnership.

Based on the above do we qualify or do we need to shift things to do so?

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CooterBrown

CooterBrown 18287

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Anyone familiar with the set up of MOB/WOB designations?
Our entity is a partnership made up of 2 Managing Entities.

Each owns 50% of the partnership.
Within one entity it is 50/50 husband and wife, both Caucasian.
Other entity that is also 50/50 is Hispanic husband and Caucasian wife.

All are operating in the partnership.

Based on the above do we qualify or do we need to shift things to do so?


When we bid on city work back when I was consulting, it was 51% ownership to be a MOB/WOB. It used to be MBE/WBE. In the case of the 2nd one, it could either be Hispanic owned or woman owned. This was over a decade ago and it could’ve changed. The owner also had to be actively involved and “qualified” for their role. For example, a wife couldn’t be the primary owner of an accounting firm and the CEO and also be flagged as a WOB unless she was also an accountant. This was to prevent people from just sticking their spouse as owner when they have nothing to do with day to day activities.
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Chewbacca

Chewbacca 7829

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Just now, bernorange said:

We got notice that SBA approved our first round forgiveness application 100%.  Our second round PPP loan application was submitted Tuesday 9am.

Shit, we've been waiting in forgiveness hell since early October.  My banker said only roughly 30% of applications have been forgiven so far.  Seems to be taking forever.

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T’Boo Ted Marshall

T’Boo Ted Marshall 2779

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When we bid on city work back when I was consulting, it was 51% ownership to be a MOB/WOB. It used to be MBE/WBE. In the case of the 2nd one, it could either be Hispanic owned or woman owned. This was over a decade ago and it could’ve changed. The owner also had to be actively involved and “qualified” for their role. For example, a wife couldn’t be the primary owner of an accounting firm and the CEO and also be flagged as a WOB unless she was also an accountant. This was to prevent people from just sticking their spouse as owner when they have nothing to do with day to day activities.

Understood. I’m wondering if the current 50% female and 25% Hispanic qualifies us now and if there is a real difference between the WOB and MOB designation.
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CooterBrown

CooterBrown 18287

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Understood. I’m wondering if the current 50% female and 25% Hispanic qualifies us now and if there is a real difference between the WOB and MOB designation.

You’d have to check at what level you want to be qualified. They’re all a bit different...fed, state, each city, etc. the qualifications are all online.

I will say in Austin, the holy grail is AA woman owned. I had several contracts that required 5% of the work to go to an AA woman owned sub contractor. We cut several checks to such businesses for doing exactly zero work. There was nothing on the project they could really do but they were on the team to check the box.

There used to be one Asian owned engineering company in town. That guy had to do zero business development since every firm added him to every team. He’d actually turn down work to keep his income below the small business threshold and keep the gravy flowing. They did great work but they had an easy life because of their designation.
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Chewbacca

Chewbacca 7829

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On 1/21/2021 at 12:12 PM, hornian said:

I don't know if it's a good thing or a bad thing that we don't qualify for round 2. Had a couple of months worse than 2019, but no quarter that was worse. Probably good. But free money is free money. 

 

I'd love it if we were in your shoes.  It was comical how much our business was down from 2019 to 2020.  2021 is looking good, but we built up a lot of debt over the last year.  Gonna take a bit to dig out.

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