NEWS

2023 Tax Updates & New Tax Information

Posted on | by FSICPA

Greetings!

We hope this finds you and your family well as we approach 2024.

Below, please see our firm update letter along with individual and business tax planning letters which were previously mailed.

2023 Firm Letter

2023 Individual Tax Planning

2023 Business Tax Planning

Additionally, there are some recent tax developments related to IRS penalty relief, ERC credits and a new LLC/ corporate ownership reporting requirement (Beneficial Ownership Reporting) that you may find relevant and we have outlined below.

As always, please call or email if you have any questions on this information.

We wish you a year full of joy, health and prosperity ahead. Happy New Year!

Francis S. Infurchia & Company, LLC

Recent & Relevant Updates – 2023

IRS offers penalty relief

The IRS announced on December 19, 2023 new penalty relief for approximately 4.7 million individuals, businesses, and tax-exempt organizations that were not sent automated collection reminder notices during the COVID-19 pandemic. The IRS will be automatically waiving approximately $1 billion of failure to pay penalties charged during 2020 and 2021 for taxpayers with assessed tax balances less than $100,000, but will resume charging this penalty in April 2024. Notices and refund checks should begin to appear in January 2024.

Link to IRS Penalty Relief

Employee Retention Credit (ERC) Updates

Suspension of ERC Processing (September 15, 2023):

The IRS issued a moratorium on the processing of new ERC claims due to a surge in questionable and potentially fraudulent applications. This decision was made to ensure the integrity of the program and to prevent misuse of funds. Taxpayers can still submit claims while the moratorium is in place, but they won’t be processed until 2024 when it is lifted.

Introduction of Withdrawal Process for Unpaid Claims (October 20, 2023):

In response to the previous concerns, the IRS introduced a process allowing taxpayers to withdraw their ERC claims if they hadn’t yet received payment. This step was aimed at those who may have submitted erroneous or doubtful claims, offering them a chance to rectify their submissions without facing immediate penalties. It was part of the IRS’s effort to manage the program more effectively and reduce the burden of processing invalid claims.

ERC Compliance Program and Voluntary Repayment (December 21, 2023):

The most recent development is the establishment of a voluntary compliance program specifically for the ERC. This program targets recipients of ERC funds who may have received payments, which they now believe to be in error because they did not understand the program or were misled by poor advice. The voluntary disclosure program allows repayment of 80% of the ERC received with no interest or penalties if certain criteria are met. The deadline to enter into this program is March 22, 2024.

Please contact our office if you would like more information on these programs.

Link to IRS ERC withdrawal information

Link to IRS Voluntary Repayment Program

Ownership Reporting for all LLCs and corporations

Please read if you own 25% or more of an active business, rental real estate or business investments in LLCs, Corporations, Limited Partnerships, and other state authorized entities.

Effective January 1, 2024, business owners will be required to report and disclose information to the U.S. government about who ultimately owns and controls your business and tax-filing entities. The Corporate Transparency Act requires all entities defined as a reporting company to file information on their “beneficial owners” with the Financial Crimes Enforcement Network (FinCEN), a division of the U.S Department of Treasury. The purpose of this new filing requirement is to create a federal centralized database to crack down on money launderers, terrorists, criminals, and individuals who evade taxes using numerous companies.

Failure to file these disclosure reports can result in significant punitive civil and potentially criminal penalties. We recommend all our clients comply with this new law. As of now, this report need only be filed one time, unless ownership changes occur.

For businesses and entities that are already in existence as of December 31, 2023, the filing of the Beneficial Ownership Information Report (BOI) with FinCEN must be filed by December 31, 2024. Any new entities that are formed starting January 1st, 2024, must file with FinCEN within 90 days of formation, Effective in 2025, the filing requirement for new entities will change to within 30 days of formation.

The US House of Representatives, along with the AICPA and state CPA societies are advocating for a delayed start to this new requirement but as of this email (December 28, 2023) it is still scheduled to begin on January 1, 2024.

While we are happy to alert you to this new reporting requirement, preparing the legal documentation required for this new compliance is outside the scope of what our accounting firm can undertake at this time, so we would be pleased to recommend legal counsel to you.

Link to FinCen Beneficial Ownership Reporting

2022 / 2023 Tax Letter

Posted on | by FSICPA

2022/2023 Greetings!

So, like most businesses, we are pretty much back to normal, and I say this with gratitude. Some post Covid changes involve modest increases to working remotely and using Zoom and Teams, but we still enjoy being in the same office with each other and meeting face to face with our clients when warranted, which is a good thing.

We continue to update our technology to automate our tax return input and processing procedures. This year we implemented a scan input system at the front end and a streamlined, easy to understand communication of tax return results and instructions to our clients’ system at the final stage. We think you will notice the efficiency.

At the very end of 2021, our firm successfully navigated through a rigorous mandated tri- annual peer review examination with flying colors. We are taking seminars and updating our knowledge of the new tax laws contained in the Inflation Reduction Act, the Covid related tax laws and opportunities, the Secure Act relating to retirement distribution requirements, and the continuing impact of the 2017 Tax Cuts and Jobs Act. The employee retention credit which in many cases returns significant dollars to businesses has been a focus of our attention. We also continue to improve inter-office communications, employee relations, job sharing, work flow, filing and retention systems and to cosmetically spiff up the office.

Nevertheless, it is our people that are by far our greatest asset, and our firm maintains a healthy mixture of the young and eager, the teachers and experienced professionals – all of whom are still aspiring.

At this point, it is again to be acknowledged that Samuel Infurchia and Timothy Frawley have been instrumental in the firm’s development and so we are reminding our clients of their recent admission as partners to the firm.

Joe Rybaruk, a CPA, maintains his unsurpassed, steady and productive work effort. Eddie Florian has taken on more complex assignments and responsibilities. Patrick Kryskiewicz, a CPA, has become a deft tax researcher for us and is heading up our initiative to identify and calculate our clients’ claims for the new employee retention credit. Greg Churchill has moved from intern to full time and is eagerly learning and acquiring new skills with diligence and thoroughness. Allison Infurchia, with her quick perceptions, has become a key go-to-person in getting assignments and large special projects done. Beth Anderson is our office manager and manages the office from both sides – clients and staff. She is always on the lookout for a better system and is always taking the time to sit with a client at pick up. Jackie Gallagher was hired in the front office this year to provide broad support in this critical area, and her friendly and engaging manner together with her experience have been invaluable.

Samuel Infurchia, CPA, a partner, is in the Masters in Taxation program at Villanova, has a business valuation credential and is doing some of the most sophisticated work in the office including foreign taxation, trusts and estates, high net worth client services and tax audit representation. He is continually bringing new ideas, ways of doing things and clients to the firm, all of which have significantly contributed to our firm’s growth.

Timothy Frawley, CPA, a partner, is now our financial audit specialist and maintains the accounting and tax compliance for some of our largest assignments. Not by intention, but just because of his generous and patient demeanor, he has become a good part of the social glue of the firm. He has taken a lead role in training the newer staff and is integral in maintaining our successful peer review status.

Frank Infurchia, Jr, CPA, a co-managing partner, is a primary initiator, leader, researcher, locomotive, business valuator specialist, business developer, and expert in tax compliance, planning, and financial statement presentation at all levels.

Larry Silvestro, CPA, a co-managing partner, has been with us almost from the beginning and sets the standard for client service, business development, high-end financial statement presentation, tax compliance and planning, and daily office leadership. We go back to childhood, although I lament that I am older!

Barbara Infurchia, my wife of 45 years, has been with us from the very beginning, in those days balancing her time raising a family and administering to the fledgling business. Barbara heads up the billing process and does all the firm’s bookkeeping. As such she has become one of the firm’s important monitors.

Bob Meissner has been with us from literally the beginning and continues to maintain a seasonal part-time position, and we are glad to have him.

Frank Infurchia, Sr, CPA, (me) remains thoroughly engaged in the firm I founded 39 years ago. Like the partners, I am a set of fresh eyes at the end of an engagement looking for better ways of financial statement presentation, reporting, tax positions taken and tax planning strategies to employ.

As a guiding philosophy, the partners remain steadfast advocates of our client interests not only in our daily dealings but also during the intermittent IRS and DRS tax audits that arise.

So, as I said at the outset, we all have a lot to be grateful for.

We look forward to meeting with you either in person or by Zoom or Teams or by correspondence as we help you with your end of the year tax plans and projections.

We are including with this update our latest tax newsletter which summarizes the significant individual and business tax developments and planning ideas. Audrey (my granddaughter and Frank Jr’s daughter) had a hand in stuffing these envelopes and so the legacy continues! Ha! Tim’s children are next!

Please make arrangements to get us your tax data, electronically, if possible, as soon as you can once we round the year.

We wish you continued health, prosperity and happiness.

Sincerely,

Francis S. Infurchia and all others discussed in this letter

SBA Released New PPP Loan Applications

Posted on | by Frank Infurchia
January 12, 2021
On Friday, January 8, 2021, the SBA released two new Paycheck Protection Program applications for new first time and second draw borrowers. The program is slated to close on March 31, 2021 or when funding runs out.
The PPP re-opened on Monday, January 11, 2021 but only to first-time borrowers who receive their loans through specific federally designated community development financial institutions and minority depository institutions. On Wednesday, January 13, 2021 these same institutions will open for second draw loans. Shortly thereafter, first and second draw loans will be available from other participating lenders. Businesses, non-profits, self-employed and independent contractors who would like to apply should contact their lenders to see when they will begin accepting applications.
The two new applications released are below – the relevant application and supporting information will need to be completed for a business’ first or second draw loan:
The supporting information needed to apply for first and second draw loans is generally the same; for Second Draw applications, the original lender may have this information already on file.
  1. Proof of established business as of February 15, 2020
  2. 2019 or 2020 Payroll tax returns – Forms 941 and state unemployment
  3. 2019 or 2020 Schedule C or Form 1065 K1s for self-employed/ partnership borrowers
In addition to utilizing the funds on payroll and forgivable costs, in order to receive forgiveness of the Second Draw PPP loan, a business must also demonstrate a 25% reduction of gross revenue in one quarter of 2020 relative to the same quarter in 2019 (or, a reduction of more than 25% annually, as indicated by comparing revenue reported on the 2019 and 2020 the tax returns). This information is only required on the application if the loan amounts exceeds $150,000, otherwise it is only required at the time of forgiveness.
You can read more specifically about the Second Draw PPP in our commentary here.
We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.

PPP – Second Draw Loans

Posted on | by Frank Infurchia
January 7, 2021
At the end of 2020, Congress passed, and President Trump signed, a new law that provides for additional relief related to the coronavirus pandemic. This law, the Consolidated Appropriations Act, 2021 (CAA, 2021), includes a second draw of Paycheck Protection Program loans available to certain smaller businesses who received an Original PPP loan and experienced a 25% reduction in gross receipts. It also allows businesses to deduct ordinary and necessary expenses paid from the proceeds of PPP loans.
Background
In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The CARES Act authorizes the Small Business Administration to make loans to qualified businesses under certain circumstances. The provision established the PPP, which provided up to 24 weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients. Taxpayers could apply to have the loans forgiven to the extent their proceeds were used to maintain payroll during the COVID-19 pandemic and to cover certain other expenses.
As of this newsletter, the SBA has just released new interim final rules to update and consolidate existing loan forgiveness here. The interim final rule on PPP2 Second Draw loans is available here. We will summarize and distribute this information to you shortly. The following is a summary of the information available from the CCA.
Paycheck Protection Program Second Draw Loans
Eligible entities
The CAA, 2021 permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP Second Draw Loan of up to $2 million.
In order to qualify for a PPP Second Draw Loan, a taxpayer must have taken out an Original PPP Loan. In addition, prior PPP borrowers must meet the following conditions to be eligible for the PPP Second Draw Loans:
  • Employ no more than 300 employees per physical location;
  • Have used or will use the full amount of their first PPP loan; and
  • Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
Loan terms. Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or in calendar year 2019. However, borrowers in the hospitality or food services industries (NAICS code 72) may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.
Gross receipts and simplified certification of revenue test
Taxpayers who borrow PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue (gross receipts) loss requirement.
Loan forgiveness
Like the Original PPP loans, PPP Second Draw Loans may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as such as rent, mortgage interest and utilities of 40%. The Second Draw Loans vastly expands other eligible expenses to include operations expenses, property damage costs and supplier costs among others. Forgiveness of the loans is not included in income as cancellation of indebtedness income.
Deductibility of expenses paid by PPP loans
The CARES Act was silent on whether expenses paid with the proceeds of PPP loans could be deducted although it was intended to be tax free. IRS took the position that these expenses were non-deductible thus creating a potential ‘backdoor’ tax liability from loan forgiveness. The CAA, 2021 provides that the forgiveness of the loans be non-taxable and the expenses paid both from the proceeds of loans under Original PPP and PPP Second Draw Loans are deductible.
As with the first round of PPP, new information was released and updated practically daily. We will keep you informed of these relevant changes.
We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.

Payroll Tax Deferral – Effective 9/1

Posted on | by Frank Infurchia
September 2, 2020
On August 8, 2020 the President directed the IRS Treasury to defer the withholding, deposit and payment of the 6.2% federal social security tax withheld from eligible employee’s paychecks from September 1, 2020 to December 31, 2020, which will increase employee’s net take-home pay by 6.2% (the amount of social security tax normally withheld). In the Memorandum (link) he also requested the Treasury to explore options for the forgiveness of the deferral. No guidance has been issued regarding the forgiveness of this tax deferral as of September 2, 2020.
The Treasury issued information on Friday August 28 in Notice 2020-65 (link) with information on how to apply this payroll tax deferral. Below are our observations and take-aways from the Memorandum and Notice:
  1. Any company that has payroll is considered affected by COVID-19 and is eligible to participate in the deferral program.
  2. The employer makes the decision on whether or not they will participate in the deferral program.
  3. The deferral period for the 6.2% social security tax begins 9/1/2020 and ends 12/31/2020.
  4. The repayment period begins on 1/1/2021 and ends 4/30/2021. The employer is required to withhold the deferred amount ratably over that period. If repayment isn’t made by 4/30/2021, then penalties, interest, and additional taxes will begin to accrue 5/1/2021.
  5. There is an exception to withholding the amount ratably during the repayment period, the IRS states that “If necessary the employer may make arrangements to otherwise collect the total applicable taxes from the employee”. The IRS doesn’t expand on this, but presumably, could this mean that if an employee is terminated or leaves before 4/30/21 that the employer can withhold the entire deferral amount from the employee’s final paycheck? Perhaps, but more information is needed on this.
  6. Eligible wages are wages paid to any employee whose bi-weekly pay doesn’t exceed $4,000 (pay rates prior to 9/1/2020 are not considered – meaning if the employee was making more than $4,000 bi-weekly prior to 9/1/2020 it doesn’t preclude them from participating).
  7. Applicable wages are determined on a pay-period by pay period basis – so if an employee’s wages exceeds the $4,000 threshold the first bi-weekly pay period but then is under the threshold the second pay period then the second pay period’s social security tax is eligible for deferral.
  8. There is no indication whether individual employees can opt-out if the employer decides to participate in the deferral program.
You should check with your payroll service to determine how they plan to implement this deferral program, should you choose to participate.
As always we will keep you informed as more guidance is issued. Please call or email if you have any questions.

PPP Revised Forgiveness Application & New IFR

Posted on | by Frank Infurchia

June 19, 2020

The SBA released new forgiveness applications (yes, plural) to incorporate the most recent legislation from the Paycheck Protection Program Flexibility Act of 2020 which became law on June 5th.  The following was summarized by our friends at the Journal of Accountancy published by the AICPA.

Keep in mind that the deadline to apply for PPP loans remains June 30.  After that date, no new PPP loan applications will be accepted.

Two new forgiveness applications were released

The revised PPP Loan Forgiveness Application and instructions include a number of notable items. Among them are:

  • Health insurance costs for S corporation owners cannot be included when calculating payroll costs; however, retirement costs for S corporation owners are eligible costs.
  • Safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers don’t have to wait until Dec. 31 to apply for forgiveness to use the safe harbors.
  • Borrowers that received loans before June 5 can choose between using the original eight-week covered period or the new 24-week covered period.

Click the links to access the revised PPP forgiveness application (link) and instructions (link)

The EZ PPP Loan Forgiveness Application requires fewer calculations and less documentation than the full application. The EZ application can be used by borrowers that:

  • Are self-employed and have no employees;
  • Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

Click the links to access the EZ PPP forgiveness application (link) and instructions (link)

New Interim Final Rule (IFR)

The SBA issued rules (link) Tuesday night for determining payroll costs and owner compensation in calculating PPP loan forgiveness under the new 24-week covered period.

  • The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee, or $15,385 per individual over the eight-week period. The new interim final rule establishes the 24-week maximum for full loan forgiveness at $46,154 per individual.
  • While the employee compensation limit for the 24-week period is three times the eight-week limit, the interim final rule does not do the same with the owner compensation replacement for businesses that file Schedule C, Profit or Loss From Business, or Schedule F, Profit or Loss From Farming, tax returns. For those businesses, forgiveness for the owner compensation replacement is calculated for the eight-week period as 8 ÷ 52 × 2019 net profit, up to a maximum of $15,385. For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 ÷ 12) of 2019 net profit, up to $20,833.

The interim final rule also modifies earlier guidance to account for changes included in the Payroll Protection Flexibility Act.

  • The minimum term for PPP loans is raised to five years for all loans made on or after June 5. For loans made before June 5, the two-year minimum maturity remains in effect unless both the borrower and the lender agree to extend it to five years.
  • The proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness drops to 60% from 75%.
  • The application deadline for PPP loans remains June 30.

We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.

This PPP loan guidance and information continues to change on a daily basis and as it does, we will keep you up to date.

 

PPP – Senate Passed New Forgiveness Extensions & Relief

Posted on | by Frank Infurchia

After hours on Wednesday, June 3 the Senate unanimously passed the Paycheck Protection Flexibility Act (link) which grants extension and relief measures for those who received PPP loans. This is expected to be signed into law by the President shortly.

The following is a summary of the legislation’s main points compiled by the AICPA:

  • PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  • The payroll expenditure requirement drops to 60% from 75%.but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
  • Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
  • The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

 

You can access the PPP Loan Forgiveness Application, instructions and worksheets here (link).

The AICPA has provided a thorough and free loan forgiveness Excel calculator which is updated as guidance is released, which can be found here (link)

We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.

This PPP loan guidance and information continues to change on a daily basis and as it does, we will keep you up to date.

PPP Loan – Forgiveness Instructions & Application

Posted on | by Frank Infurchia
May 18, 2020
On Friday, May 16th the SBA published their Paycheck Protection Program Loan Forgiveness Application along with instructions and worksheets. The Loan Forgiveness Application will need to be submitted to the lender servicing your PPP loan.
You can access the PPP Loan Forgiveness Application, instructions and worksheets here (link).
The AICPA (our professional credential governing body), has been great at disseminating information regarding the PPP, with articles, Excel calculators and prescient insight. As of this email, they are still updating their Excel calculator for forgiveness. Here (link) is an article on forgiveness released by the AICPA last Friday.
The AICPA’s SBA loan information center and resources can be found here (link).
We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.
This PPP loan guidance and information continues to change on a daily basis and as it does, we will keep you up to date.

PPP Loan – Certification of Need – New Info

Posted on | by Frank Infurchia
The news last week described the PPP certification of need and possible ways to document it with narratives, financial forecasts and cash flow projections to support uncertainty and need at the time you applied for it. The purpose of which was to determine if the loan should be repaid to avoid undue government scrutiny. Today, May 13, the SBA released FAQ #46 which says that any loan request made in an amount less than $2 million is deemed to have been applied for in good faith.
Click here for a link our previous article regarding good faith certification.
Below is the exact text from FAQ #46 and here is a link to all the PPP published frequently asked questions.
“As of May 13, 2020
46. Question: How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?
Answer: When submitting a PPP application, all borrowers must certify in good faith that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA, in consultation with the Department of the Treasury, has determined that the following safe harbor will apply to SBA’s review of PPP loans with respect to this issue: Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns.
Importantly, borrowers with loans greater than $2 million that do not satisfy this safe harbor may still have an adequate basis for making the required good-faith certification, based on their individual circumstances in light of the language of the certification and SBA guidance. SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the Borrower Application Form. If SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request. SBA’s determination concerning the certification regarding the necessity of the loan request will not affect SBA’s loan guarantee.”
This PPP guidance and information continues to change on a daily basis and as it does, we will keep you up to date.

PPP Loan – Forgiveness & Certification of Need

Posted on | by Frank Infurchia
Over the last month we have done a significant amount of SBA and PPP loan consulting with our clients. One thing that we have learned is that the guidance regarding these loans is constantly changing. Our emphasis has shifted from calculating PPP loan borrowing amounts to now calculating potential loan forgiveness amounts and demonstrating the good faith certification of need for these loans.
Forgiveness
PPP borrowers can qualify to have their loans forgiven if the proceeds are used to pay certain eligible costs within in the 8 week period after the receipt of the loan. However, the amount of loan forgiveness will be reduced if less than 75% of the funds are spent on payroll costs and the remainder on rent, utilities and mortgage interest.
There are rules for retaining full-time equivalent employees, individual employee salary levels and retroactive relief provided to employers who rehire employees by 6/30/20. We can provide guidance and planning opportunities, so please call.
Good Faith Certification
In addition to the mechanical loan forgiveness calculations above, the PPP application required a good faith certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”. The SBA is beginning to provide some clarity to this subjective phrasing and is now warning borrowers that in the absence of a good faith certification borrowers can be assessed penalties and in some cases be subject to criminal charges.  A few frequently asked questions recently released and posted on the SBA website address this certification ( link). Question #31 infers that a public company that has access to public markets and other sources of sufficient liquidity may not be able to make this certification of need in good faith. Another, #37, addresses the need in the same way for a private company, referring the reader back to the answer for #31. Secondly, in FAQ #39, the SBA reminds borrowers of the certification of need on the application and indicates that they will review (audit) all loans in excess of $2 million and other loans as appropriate, in their opinion, to determine economic need. A borrower can fall under the safe harbor provisions to avoid prosecution, penalties and potential criminal liability by repaying the loan before May 14, 2020 (FAQ #43)
Clearly, it would be wise to formally document projected business disruption by preparing cash flow projections and narratives describing what could occur if the shutdown lasts for certain periods of time, how long it will take to return to ‘normal’, how many staff will be laid off if revenues decrease, etc. and compare this information to pre-shutdown figures. If these exercises reveal that you have sufficient liquidity or ability to maintain your workforce at average 2019 levels for the next 6, 9, 12 or 18 months without the PPP loan, it may make sense to repay all or part of the loan before May 14.
We acknowledge there are still many uncertainties embedded in the foregoing. As more guidance is released we will keep you updated.