Jan. 12, 2021 COVID Round Tables (Part 2)

The SBA is again accepting and processing applications for PPA loans. Joining us today is Nigel Nabuurs, product manager at Patriot Software Payroll and Accounting, sponsors of our COVID-19 Round Tables. 

The COVID-19 Advisor Resource Page on our website contains valuable information for you and your clients in navigating through these difficult waters as well as recordings of previous round tables. And articles about our round tables are being published on the Woodard Report website. There is a five-article series about our January 5 round table with Gene Marks on the Woodard Report website.

Joe Woodard: So for the PPP do you calculate the estimated monthly payroll on your 2019 or 2020 payroll?  

Nigel Nabuurs: You can actually use either one. There’s a caveat: if you originally used 2019 for your first draw loan and then for your second draw loan, you also want to use 2019 and you go back to the same lender, the lender isn't required to get any new information from you. So because you're using all the same documents, it might actually make that process easier for you. I know some of the lenders are requiring new documentation anyway. That's going to depend on the lender. If you stay consistent, you might not have to provide that additional information, but you do have the option to use either year.  

Joe Woodard: And then cash to accrual. I'm going to reiterate what Gene said last time. He said that you measure your revenues for PPP loan purposes based on your tax return basis. If you filed your tax return on the accrual basis in 2019, then you'll have to base your calculations for PPP qualification on the accrual basis for 2020. What if someone is converting their tax basis between the two years? My understanding is that it doesn't matter: It only matters how you filed your 2019 return. It doesn't matter how you're going to file your 2020 return. Have you read anything on that, Nigel? 

Nigel Nabuurs: I know that it has to be comparable. So it would make sense that they would have you use the basis you used on your return. I haven't seen anything specific on changing accounting methods, but from what I have read Gene's answer makes a lot of sense.  

Joe Woodard: One of our guests has a follow-up comment: 

Round Table Guest: Hi, everybody. We have several clients that have accrual-based financials and they file on the cash basis. We were told that we would first test the qualification on the accrual basis. And if they did not qualify, we could convert it to cash. 

Joe Woodard: Gene told us last week it was whatever the tax return is, so it would be what we need to do. Who was telling you this? 

Round Table Guest: Some banks. And we are having discussions through our higher-level PPP team within our firm. Unfortunately, last Friday at 4:30 a large bank in the Chicago area sent out their first round of emails alerting their clients that PPP to is going to open. That started the barrage of emails to us. We haven't even had time to digest it all.  

Joe Woodard: I'm sure it's absolutely insane. Especially if there's a major bank or even a well-respected community bank saying that this will cast a little light on the absolute position that Gene had last week. Now, new guidance may have come out since last week, too. 

Round Table Guest: Well, there was an IFR, but it's some 50 pages long and the language is hard for a lay person to understand, so I'm sort of looking for the Cliff Notes versions of all of this. The banks haven't opened yet so they don't even know what they need. Unfortunately, the clients are emailing us to death. It’s rapid fire. They say, “Okay, I'm ready. Can I do it like I’m qualified?” 

Joe Woodard: We've got ourselves a little gray area. Let's go back to the ERC, Nigel. Can you give a little bit more specificity or clarity on the ability to retroactively apply the ERC 2020? Tell us exactly what the mechanism is for applying the credit and to which quarters we can apply the credit. If we missed the boat, can we amend the form? 

Nigel Nabuurs: The employee retention credit is a credit taken on the Form 941 or 944 or 943 depending on which one you file. It was first reportable on the Form 941 for the second quarter of 2020. The other caveat is that, because it actually started around March 12, any amounts for the first quarter 2020 are actually also reported on the Form 941 for the second quarter of 2020.  

But yes, you can go back and amend those returns. If you have a client that now qualifies that didn't before because the client got a PPP loan and you want to amend those returns you can definitely do that. And your client should get a refund for that. I mean, you can also choose the option to have it carry forward. But the first thing is probably going to be to try to just get the client a refund check in the mail. 

Joe Woodard: Are you guys at Patriot calculating that automatically and applying the credit since you’re processing payroll for the client, or do they have to go through a special process to request that of you?  

Nigel Nabuurs: Right now, if you want to use the employee retention credit for the current quarter in our software, we have a web page where you can go in and request that. No problem. We are working on building something for the retroactive piece. The guidance came out pretty recently. So we're just working on updating our system to have that. My understanding is that most payroll providers will have a mechanism to allow you to make that election. The retroactive piece is a little more difficult. It may take a while before that’s available, but generally most payroll providers should have something that allows you to indicate that you qualify for that credit. Then they'll apply it on your returns. 

Joe Woodard: Okay. Gene spoke about SBA 7A forgiveness. Previously, some 7A payments were only allowed for loans disbursed before September 27, 2020. I remember Gene saying that the forgiveness was extended or amended, whichever applies. So there is the new legislation that was signed into law on December 27. Does it have an impact on that lending forgiveness? 

Another question: Is the owners’ compensation factored into the payroll? We talked about that. Yes, it's both factored in, and limited to the cap of $100,000. This includes W-2 salaries and wages, compensation reported on 1099s to owner/contractors and K-1s for income passed through to partnership, LLC, and S corporation owners. And there’s a lot of payroll activity that’s not actually considered payroll. 

Nigel Nabuurs: And then we also have the cap on the program as a whole, where all employees are capped at the equivalent of $100,000 per year. And that's on the application side and the forgiveness side. The IFR (interim final rule) that was recently released covers how to calculate the amounts you can borrow and be forgiven. 

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