Jan. 19, 2021 COVID Round Tables (Part 6)

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: A business must be established by February 15, 2020, to apply for PPP. So how do we prove that there has been a 25 percent reduction in revenue? Well, then you would do it in quarters two, three or four compared to quarters two, three or four of last year.

Gene Marks: Correct. That is exactly right. You use whatever quarters that you were in operation this year as your baseline quarters and then compare the most recent quarter against that.

Joe Woodard: If the business changed entity form on January 1 of this year from a sole proprietorship to an LLC, do they qualify for a second PPP?

Gene Marks: I don't see why not. There's really nothing that would stop me from applying for a PPP just because of a change in entity form. You still calculate your average payroll the same way. No, I don't think there's any impact on you applying for another PPP loan.

Joe Woodard: There seems to be a lot of confusion of gross receipts and gross revenues. People are saying not to be confused by the language.

Gene Marks: I agree. In order to receive forgiveness, everybody with a loan under $150,000 can fill out that one-page form. But you must represent that you spent the forgivable funds and you haven't committed any fraud. And one of the things you're going to be asked on that form is that yes, you've restored your headcount to the levels predating February 15. In fact, you're given both a 25 percent cushion for the number of employees and employees’ salaries, but that rule is still there. You had to have restored your headcount by the end of the covered period, whether you have the 8-week or the 24-week covered period. The headcount rules still apply in the sense that you don't have to restore specific employees. You can have different people, but you need the same number of bodies.

And then as far as compensation, you have to confirm that your employee compensation isn't less than 25 percent of what it was before February 15. And that compensation can also include bonuses, which is also good news. The same rules apply if you offer jobs back to employees which they didn't want to take because they decided to collect unemployment. I just want to make sure everybody knows those headcount rules are still there. Even though you know when you sign off on it, you have to say it.

You know, it's a tough economy. There's a lot of businesses that may not have restored their headcounts. There's still 12 million people unemployed. That's a potential issue out there to which I think we as accountants need to pay a little more attention.

Joe Woodard: I agree. What's the form number for that short forgiveness form. Do you know it yet?

Gene Marks: No, I don’t.

Joe Woodard: What if an existing business is being purchased as of February 1, 2021 that was in business before February, 2020 and is getting a new EIN. But the previous business qualifies for PPP. If you get a new EIN, do you reset the clock, or can the new business use the payroll numbers from the previous business?

Gene Marks: The deadline for filing for PPP loans is March 31. If the acquisition is complete in February, and there's going to be a new EIN, but you are acquiring another company and bring on employees, I’m almost certain that your banker will allow you to use the compensation even though there was an old EIN.

I know it is not addressed, so that’s something to discuss with your lender, but I’d be hard-pressed to believe that a lender wouldn't accept your documentation.

Joe Woodard. I’d be hard-pressed to believe that a lender would grant a PPP loan without knowing the facts.

If a business has the capital to acquire during the period, is the PPP necessary for ongoing operations? That would be an even more pressing question, but you never know the basis of this acquisition. It could be a long-term, family-owned, earn-in or something. So regarding PPP versus unemployment, can a sole proprietor apply for unemployment if their income went down significantly, but did not cease?

Gene Marks: Yes, you can apply for unemployment, there's no question about it. Even if you've lost all of your income. You're just going to have to show your state unemployment office what your income is now, and if you qualify for unemployment in your state, you're completely eligible.

Joe Woodard: Can you remind people what the deadline was for claiming NOL carrybacks? You said to act fast.

Gene Marks: There is no deadline. You can extend your clients’ returns. I'm telling you to act fast because the IRS usually issues refunds within six weeks of the returns’ being filed. The whole reason why they have an NOL carryback is to give businesses that lost money the opportunity to get their hands on some cash by carrying back these losses. They're not going to be able to get their hands on any cash if we're sitting on the returns.

Joe Woodard: So it's a matter of getting the cash out.

Gene Marks: That's the requirement.

Joe Woodard: So can you use that carryback if an LLC has changed owners somewhere within the last five years?

Gene Marks: It’s unlikely that you can, and I would have to look at what the tax rules are for doing that. You can go back to the old NOL carryback rules. I’m not sure that you can if you have different EINs and you had a prior company and entity that was retired. You probably cannot but I'm not 100 percent sure.