June 16, 2020
By Kathy Davis, CPA
Our COVID-19 Response Team received additional guidance when the SBA issued the application dated May 20, 2020, and then, finally, H.R. 7010 (extension of time to spend the funds and decrease in payroll costs to the other applicable costs, signed by the President on June 5, 2020). Now, we are waiting on the SBA to release FAQs that will provide how the SBA will interpret these new provisions.
We thought it might be beneficial to list some of our questions on these changes and what hopefully the SBA will respond to in these areas.
- Will companies need to wait until the end of the 24-week period to apply forgiveness? What if you have spent the funds successfully by the 14th week of your forgiveness period and have your FTEs restored. Can you apply then, or do you have to wait until after the 24-week period?
- We are assuming that the limit of compensation per employee will increase from the $15,385 (8/52nds of $100,000) to $46,153 (24/52nds of $100,000).
- And if it does, will the forgivable compensation to owner-employee increase to $46,153?
- There is a provision related to the FTE requirements that if we can document the inability to return to the same level of business activity due to compliance with guidance issued by the Secretary of Health, Director of the Centers for Disease Control or OSHA, or the inability to hire similarly qualified employees for unfilled positions, that we can get a pass on restoring the FTE count. This is a ray of light for our restaurants, retailers, and all businesses that are restricted by social distancing requirements, etc. What will the bank/SBA requirements be for documentation?
- What if you’re self-employed? If that calculation will now be 24/52, it would indicate that all self-employed businesses with no employees should automatically be guaranteed forgiveness. But have they changed it to 24/52nds for the self-employed?
- They have indicated that you need to apply for forgiveness within 10 months of the covered period, then the bank will need to approve the forgiveness and or loan amount. The expenses related to the forgiven amount have been stated to be non-deductible (let’s not get into the justification for this right now), how will you file your taxes for 2020? For example, the end of your 24-week covered period is October 20, 2020. You file your application for forgiveness February 25, 2021, well within the ten-month period allowed. The bank does not respond to your application until April 5, 2021. Wait, our tax return is due March 15?
- Currently it looks like the banks will not be accepting applications for forgiveness until after July 1, 2020 (which appears to be applicable to those that elect to keep the 8-week covered period).
Hopefully the SBA will soon release the FAQs, so that we can get on with business. Maybe just by sending this memo out, the SBA will magically issue the overdue FAQs.
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