Lee B

Copied from the Journal of Accountancy "Breaking down the PPP provisions The return of the PPP is of particular interest to accountants, who played a significant role in helping millions of small businesses acquire $525 billion in forgivable loans during the five months the program was accepting applications, according to SBA reporting. The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level view of the PPP provisions. Who is eligible to apply PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they: Have 300 or fewer employees. Have used or will use the full amount of their first PPP loan. Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019. PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020. PPP2 will also permit first-time borrowers from the following groups: Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans. Sole proprietors, independent contractors, and eligible self-employed individuals. Not-for-profits, including churches. Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location. The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them. PPP loan terms As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable: Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines. Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations. Covered operating costs such as software and cloud computing services and accounting needs. To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August. PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum. Simplified application and other terms of note The new COVID-19 relief bill also: Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud. Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount. Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders. Tax deductibility for PPP expenses The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what the AICPA and hundreds of other business associations have argued was Congress’s intent when it created the original PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136 (see the Dec. 3 letter from the AICPA and state societies to congressional leaders). The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans. While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses used to achieve that loan forgiveness would continue to be deductible, even though they would otherwise be deductible. In April, the IRS issued Notice 2020-32, which stated that no deduction would be allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan because the income associated with the forgiveness is excluded from gross income for purposes of the Code under CARES Act Section 1106(i). In November, the IRS then expanded on this position by issuing Rev. Rul. 2020-27, which held that a taxpayer computing taxable income on the basis of a calendar year could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had a reasonable expectation of reimbursement in the form of loan forgiveness on the basis of eligible expenses paid or incurred during the covered period. Treasury Secretary Steven Mnuchin also argued against businesses being able to deduct business expenses paid with forgiven, tax-free PPP funds, calling it an unwarranted double benefit for businesses. The AICPA disputed this interpretation of the CARES Act loan forgiveness rules, arguing that it was not Congress’s intent to disallow the deduction of otherwise deductible expenses. Congress has now agreed with that position."

Over 20 years ago, my client who was an irrigation contractor was audited. One issue that arose was that he hadn't paid some employment taxes for several years. The auditor proposed an audit adjustment for the unpaid employment taxes saying that they shouldn't be deductible. Since my client was on accrual basis accounting, I pushed back hard. After discussing the issue the auditor backed down and removed the adjustment.

Yea ,the Omnibus Spending Bill due to be passed tomorrow or Tuesday includes the authorization to deduct the qualifying allowable expenses funded by PPP Loans which have been forgiven. It will also authorize a second round of PPP Loans with more restrictive qualifying parameters.

The current bill under consideration in Congress includes a second round of Stimulus Payments, $ 600 Single and $1,200 for a married couple and if the qualifying parameters get changed, the start of tax season will probably will be delayed. For the IRS, this comes at the absolute worst possible time!

Copied from IRS eNews: "New and draft forms, instructions and publications on IRS.gov New forms Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return Form 940 (Schedule A), Multi-State Employer and Credit Reduction Information Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund Form 943, Employer's Annual Federal Tax Return for Agricultural Employees Form 944, Employer's Annual Federal Tax Return Draft forms Form W-4P, Withholding Certificate for Pension or Annuity Payments Form 941, Employer's Quarterly Federal Tax Return Form 941-SS, Employer's Quarterly Federal Tax Return - American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands New instructions Inst 940, Instructions for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return Inst 941-X, Instructions for Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund Inst 943, Instructions for Form 943, Employer's Annual Federal Tax Return for Agricultural Employees Inst 944, Instructions for Form 944, Employer's Annual Federal Tax Return New publications Pub 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G Pub 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters Pub 5258, Affordable Care Act (ACA) Information Returns (AIR) Submission Composition and Reference Guide Draft Publications Pub 15, Circular E, Employer's Tax Guide Pub 15-T, Federal Income Tax Withholding Methods Pub 51, Circular A, Agricultural Employer's Tax Guide"

There was also a similar announcement earlier this month specifically related to Forms 2848 and 8821. The IRS news release said the they wanted practitioners to be aware that this would not speed up the processing time for these forms.

The email that I received from Drake says as follows: "You will be able to transmit returns to Drake up until 11:59 am ET on Saturday, December 26, 2020. We strongly suggest you attempt your final transmissions at least one hour before the cutoff time."

I would write across the top in red ink, "Resubmitted With Requested Forms"

"The IRS recommended that any electronic return originators who hear from individuals posing as the IRS should contact the Treasury Inspector General for Tax Administration at www.tigta.gov to file a complaint. In addition, EROs who have been contacted by the scammers and were tricked into disclosing their acceptance letter should contact the IRS’s e-Services help desk immediatel"

In that case be aware that this might be a scam!

My thoughts are, first who was the executor for the estate, because this looks like a big mess with one legal misfire after another. Your client needs competent legal advice,because whoever the executor was sure didn't have any!

Copied from the SBA Website: Loan Forgiveness Payroll Costs FAQs 1. Question: Are payroll costs that were incurred during the Covered Period2 or the Alternative Payroll Covered Period3 but paid after the Covered Period or the Alternative Payroll Covered Period eligible for Loan Foregiveness? Answer: Yes, if the payroll costs are paid on or before the next regular payroll date after the Covered Period or Alternative Payroll Covered Period. Example: A borrower received its loan before June 5, 2020 and elects to use a 24-week Covered Period. The borrower’s Covered Period runs from Monday, April 20 through Sunday, October 4. The borrower has a biweekly payroll cycle, with a pay period ending on Sunday, October 4. However, the borrower will not make the corresponding payroll payment until the next regular payroll date of Friday, October 9. Under these circumstances, the borrower incurred payroll costs during the Covered Period and may seek loan forgiveness for the payroll costs paid on October 9 because the cost was incurred during the Covered Period and payment was made on the first regular payroll date after the Covered Period. 2. Question: Are payroll costs that were incurred before the Covered Period but paid during the Covered Period eligible for loan forgiveness? Answer: Yes. Example: A borrower received its loan before June 5, 2020 and elects to use a 24-week Covered Period. The borrower’s Covered Period runs from Monday, April 20 through Sunday, October 4. The borrower has a biweekly payroll cycle, with a payroll cycle ending on Saturday, April 18. The borrower will not make the corresponding payroll payment until Friday, April 24. While these payroll costs were not incurred during the Covered Period, they were paid during the Covered Period and are therefore eligible for loan forgiveness.

Actually, it's not either or it's both. However you get to choose how you want to do it.

Yeah, their request indicates a lack of trust and/or their intention to find a different preparer. If you want retain them as a client, them you need to try to find out why they are asking for the information and try to reassure them.

Tom, I must say that I agree with Sara

Based on the online CPE classes that I took, your banks interpretation is correct. My largest client with a semimonthly payroll had a pay date which fell on the first day of their PPP allowable window. I specifically asked 2 different presenters whether these were allowable payroll expenses. Both presenters said the way the rules were written and are being interpreted that my clients paychecks dated the first day of their allowable expense window which was April 16th were definitely allowable payroll expenses along with the related state employment taxes.

We started the refinance process back in early September. I think we finally have all the documentation submitted that the mortgage company wants. Now it's just waiting for them to grind thru everything.

The IRS has been understaffed and underfunded since 2011. This situation is like slow moving avalanche moving downhill. It will not be fixed anytime soon.

There a number BBB reviews to look at.

While I haven't seen any no fee offers, I have seen several very low fee offers i.e. $275 with a higher interest rate, no free lunch. Or it's teaser offer, where things change as you get closer to closing.

If you are referring to an amended Form 1040, I believe you will probably have to wait until 1040 efiling reopens in 7 or 8 weeks.

I have used CCleaner for years, no complaints.

The IRS still has 3 million pieces of unopened mail plus 1 million unprocessed paper filed tax returns.

I really hope this works out for you.

The Senate Finance Cmte is making a bipartisan push to have the both the loan forgiveness and the PPP allowable expenditures be non taxable. They are trying to have this included in the Omnibus Spending Bill which needs to be passed no later than December 11th, in order to avoid another government shutdown. I really hope this happens. It would be a big relief to have this resolved before the end of the year!