Jan. 19, 2021 COVID Round Tables (Part 2)

Returning today is Gene Marks from the Marks Group PC. He is an author, a speaker on small business expertise, and a CPA. He has presented at Scaling New Heights. He was one of our guests on the Round Tables back in March for the CARES Act when we were trying to figure out what was happening with coronavirus relief, and previously spoke at our January 5 Round Tables. He writes regularly for The Hill, the Philadelphia Inquirer, Forbes, Entrepreneur Magazine, and The Guardian, and appears regularly on MSNBC, CNBC, Fox Business and Fox News. He’s the author of six books on business management and comes to us today compliments of our friends at Patriot Software, a leading payroll provider which works with QuickBooks Integrated Payroll.Joe Woodard: Should an entity recognize PPP loan forgiveness? That’s the same as the inverse of this when it believes the loan will be forgiven. Right. Okay, so that's actually at forgiveness. 

Gene Marks: It’s when you say it believes that the forgiveness will happen. Again, this is more in accounting terminology, and it's the same that you would use for footnotes disclosure. When is it probable and estimable? That’s what you want to use as your adjustment.  

Is it probable that it's forgivable and why is it probable? That's because we've completed all the paperwork. My banker told me that it's imminent, that it's going to happen. We know that at that point you may have good justification for saying it is probably estimable, so I can consider this to be forgiven. 

Joe Woodard: If you’re applying for a PPP loan and taking the employee retention tax credit, are there any rules on how to apply the expenses to get the most out of both? There are certain expenses approved under PPP, and the ERTC has guidelines on its usage.  

Gene Marks: You can overlap your payroll expenses, which do include group insurance now for the employee retention tax credit. You need good books and records, but you can't use the same payroll expenses for your forgiveness of this loan and the employee retention tax credit. They have to be different. 

Joe Woodard: Can I apply for PPP if I received round one and I have not submitted the forgiveness application? 

Gene Marks: Yes. You only have to prove that you've spent the money. And again, that's another conversation to have with your banker. Different bankers have different ways of determining whether or not the money's been spent. But you can use your bank statements or whatever documentation your banker requests that proves that you spent this money. 

Joe Woodard: If the banker does not require audited financial statements, just internal reporting, then yes. 

Gene Marks: That's exactly and it's funny that this question is brought up, because when the initial PPP happened, we were advising clients to set up separate bank accounts if possible to segregate the money. The was no rule requiring it, but because it was segregated, it makes it much easier to account for when it comes time to file for forgiveness. If we had a separate bank account, it's even easier to show that after we got this money, we spent it.  

Joe Woodard: And in QuickBooks, you could have a separate bank account on the VM Admin account on the GL but even without a separate literal account. And then you disperse out of that from a QuickBooks sub bank account. You don't even have to deal with multiple bank RECs is right. So is there any guidance on basis? So I think he was saying that the guidance on basis of GAAP. 

If a nonprofit has grant funds to cover payroll, is it double-dipping to use those payroll expenses for the employee retention tax credit? 

Gene Marks: No, it is not. When you say grant funds, let's make sure that this is not the shuttered venue grant program because a lot of nonprofits are in the arts industries and if you participate in that new program you can participate in PPP. But you can use grants that your nonprofit is obtaining for whatever reasons. They don’t play in any way into your PPP calculation. It's still money that you're spending for payroll and payroll-related expenses that are eligible for forgiveness. 

Joe Woodard: I guess, in the spirit of the thing, that the grant is a form of revenue. It’s using revenue over costs and general and administrative expenses, like a for-profit company.  

If a company does not apply for PPP forgiveness till the end of the 2020 financial year, the PPP loan is still in the balance sheet for tax purposes and expenses are fully deductible. Correct? 

Gene Marks: Assuming that you're on the accrual basis, then the answer is yes. 

Joe Woodard: But if they received as PPP funds from the 2020 first phase that is also on the cash basis balance sheet, for next year, they will have PPP nontaxable income that will increase basis in 2021 for S corporation owners.  

Gene Marks: I think the rule of thumb that we're telling our clients is that when it comes to accounting for the PPP loans is to make every effort possible to match them in the current year. 

Joe Woodard: It makes perfect sense because that's not happening with me. I'm a cash basis filer, so I will not receive my forgiveness in the same period as my taxable income. So I'm going to probably have a tax event. 

Gene Marks: Yes. That is correct.  

Joe Woodard: But we just couldn't get the forgiveness done by December 31. Our answer to 80 percent of the questions from clients is to check with your lender.  

Gene Marks: Yes. 

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