SBA Questioning PPP Borrowers with Loans Over $2 Million

When Congress initially authorized the Paycheck Protection Program, its intent was to provide loans that would be partially or completely forgiven if used for the intended purposes of helping businesses affected by COVID-19 stay afloat and to help those businesses maintain payroll. As part of the Small Business Administration’s (SBA’s) loan application, Form 2483 or lender’s equivalent form, borrowers had to certify under penalty of imprisonment and monetary penalties to the following:

  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. 
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud. 

Needless to say, the contemplation of free money had businesses scrambling to take out PPP loans, whether they were impacted by economic effects of COVID-19 or not.

The secretary of the treasury had initially indicated the need for all PPP loans to be audited, but later specified only those of $2 million or more would be subject to audit.

After a long wait, and as long anticipated, the SBA has initiated a compliance program to evaluate the good-faith certifications that borrowers made on their PPP Borrower Applications stating that economic uncertainty made the loan requests necessary. Accordingly, each borrower that, together with its affiliates, received PPP loans with an original principal amount of $2 million or greater will be required to participate in this compliance program, and will soon be receiving one of the following multi-page forms from their lender:

Sometimes referred to as a “loan necessity questionnaire,” the form and requested supporting documents must be submitted to the lender servicing the borrower’s PPP loan. The completed form is due to the lender within ten business days of receipt. Among other things, the forms request:

  • Whether the borrower’s business was shut down as a result of a government order. 
  • Whether any of the business’s owners were compensated in excess of $250,000. 
  • The borrower’s liquidity before and after receipt of the loan funds and during the covered period.
  • The business’s gross revenue amounts for 2019 and 2020. 

The SBA says it is reviewing these loans to maximize program integrity and protect taxpayer resources. The information collected will be used to inform SBA’s review of each borrower’s good-faith certification that economic uncertainty made their loan request necessary to support ongoing operations. Receipt of this form does not mean that SBA is challenging that certification. After this form is submitted, SBA may request additional information, if necessary, to complete the review. The SBA’s determination will be based on the totality of the borrower’s circumstances.

Failure to complete the form and provide the required supporting documents may result in SBA’s determination that the borrower is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and SBA may seek repayment of the loan or pursue other available remedies.

If you have any questions related to this issue or need assistance completing the form and assembling supporting documentation, please give our office a call.

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President Enacts Additional Stimulus Legislation

 On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA2021), which includes $892 billion in coronavirus stimulus spending. This long-awaited and highly contested piece of legislation ties coronavirus relief funding into a $1.4 trillion resolution for funding the federal government through September of next year. The nearly $900 billion in stimulus funds comprises a variety of measures, including a renewal of enhanced unemployment benefits, an extension of the Paycheck Protection Program, and another round of individual stimulus payments. Read on for a breakdown of the various COVID-19 stimulus measures included in CAA2021. 

INDIVIDUAL MEASURES

Unemployment Benefits

Portion of the stimulus package: $120 billion An extension of federal unemployment supplemental benefits through March 14, 2021 at a rate of $300 per week.  Additionally, it legislates an extension of two pandemic unemployment programs set to expire at the end of December, the Pandemic Unemployment Assistance program, which has been expanded to provide aid to self-employed, temporary, and gig workers, and the Pandemic Emergency Unemployment Compensation Program, which provides an additional 13 weeks of benefits beyond the typical 26 weeks that states provide to jobless workers. 

Extension of Eviction Moratorium & Rental Assistance

Portion of the stimulus package: $25 billion A temporary extension of the federal eviction moratorium through January 31, 2021 and $25 billion in emergency rental assistance. 

Economic Impact Payments

Portion of the stimulus package: $166 billion Direct payments of $600 for qualifying adults and their child dependents. Individuals earning up to $75,000 annually (or married couples making up to $150,000) qualify for the full payment; individuals earning between $75,000 and $99,000 qualify for a reduced payment; individuals earning more than $99,000 do not qualify. 

Food Aid

Portion of the stimulus package: $13 billion Additional funding for the Supplemental Nutrition Assistance Program and a benefits increase of 15% to last for six months. 

BUSINESS MEASURES

Paycheck Protection Program Extension (PPP2)

Portion of the stimulus package: $284 billion CAA2021 provides an additional round of funding for the PPP and expands eligibility to include nonprofits (Sec. 501(c)(6)), local newspapers, TV stations, and radio stations. Additionally, it ensures the tax deductibility of business expenses paid with loan funds that are forgiven, a measure that has been widely called for by loan recipients and the American Institute of Certified Public Accountants (AICPA). For further details on PPP2, click here to read a helpful summary from the Journal of Accountancy

Support for Entertainment Venues

Portion of the stimulus package: $15 billion Funds for struggling live venues, independent movie theaters, and cultural institutions. 

Support for Business in Low-income Communities

Portion of the stimulus package: $12 billion Funds earmarked for businesses in low-income and minority communities.

Economic Injury Disaster Loan Grants

Portion of the stimulus package: $20 billion Additional funds to be administered through the Economic Injury Disaster Loan (EIDL) program, dedicated to businesses in low-income communities. 

Support for Child Care Centers

Portion of the stimulus package: $10 billion Aid money to help child care centers safely reopen and to support families with child care costs. The money is to be administered via the Child Care Development Block Grant. 

Aid to Transportation Sector

Portion of the stimulus package: $45 billion A variety of transportation-related assistance that includes $16 billion for airlines (for paying the salaries of workers and contractors), $14 billion for mass transit agencies, $10 billion for highways, and $1 billion for Amtrak. 

ADDITIONAL MEASURES

Support for Education Institutions

Portion of the stimulus package: $82 billion This money is designated to help schools and universities reopen. The funds are earmarked as follows: $54 billion for public K-12 schools, $23 billion for colleges and universities, $4 billion for the Governors Emergency Education Relief Fund, $2.75 billion for private K-12 education, and nearly $1 billion for Native American schools. 

Funding for Vaccine Distribution and Coronavirus Testing

Portion of the stimulus package: $68 billion CAA2021 includes money for both supporting the distribution of coronavirus vaccinations and for helping to pay for costs associated with COVID-19 testing. $30 billion is directed for the procurement of vaccines and treatments, the funding of distribution for states, and the creation of a strategic stockpile. $22 billion is earmarked for testing, tracing, and mitigation. Of the remaining funds, $9 billion will go to healthcare providers and $4.5 is earmarked for mental health. 

Increased Broadband Access

Portion of the stimulus package: $7 billion Funding for broadband initiatives to support better connectivity and infrastructure. $3.2 billion is earmarked for the Emergency Broadband Benefit, which provides low-income families and individuals laid off or furloughed due to the pandemic with a monthly stipend of $50 to pay for internet services. $1.9 billion is dedicated to financing “rip and replace” projects—the removal and replacement of Huawei and ZTE networking equipment. $1 billion will go to Tribal broadband programs and $300 billion is dedicated to rural broadband deployment. 

Farm Aid

Portion of the stimulus package: $13 billion Funding for farmers and ranchers.

Postal Service

Portion of the stimulus package: $10 billion CAA2021 includes the forgiveness of a $10 billion loan made to the United States Postal Service earlier this year. 

WHAT’S NOT INCLUDED

A number of provisions that were initially included in proposed coronavirus stimulus legislation were, ultimately, left out of the bill. These include protection for businesses against liability regarding COVID-19 exposure, financial aid to state and local governments, and an extension of federal student loan forbearance. 

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In the Firm - December 2020

What's new at Seim Johnson?

With tax season finally behind us, we move into the holiday and end of the year season. 2020 will certainly be a year to remember. Check out what our team has been up to since our last newsletter.
 
Additions to the Family
Two of our team members recently welcomed new additions to the family!
 
Larissa Brown, tax manager, and her husband Zach welcomed baby Harper.
 
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Katie Prest, consulting associate, and her husband Lachlan welcomed baby Robert.
 
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Congratulations Jessica Watts
Jessica Watts has been nominated to Director for the Nebraska Society of CPA’s. Read more here.
 
Community Efforts
Thank you to all our employees who participated in this year's United Way campaign. The firm raised nearly $11,000 through employee donations for the 2020-21 year. We're proud that our contributions will assist the United Way of the Midlands help our local community and make Omaha and Nebraska an even better place to work and live.
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Important Tax Due Dates – December 2020

December 2020 Individual Due Dates

December 1 - Time for Year-End Tax Planning

December is the month to take final actions that can affect your tax result for 2020. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2020 should call for a tax planning consultation appointment.

December 10 - Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

December 31 - Last Day to Make Mandatory IRA Withdrawals

Last day to withdraw funds from a Traditional IRA Account and avoid a penalty if you turned age 70½ before 2020. If the institution holding your IRA will not be open on December 31, you will need to arrange for withdrawal before that date.

December 31 - Last Day to Pay Deductible Expenses for 2020

Last day to pay deductible expenses for the 2020 return (doesn’t apply to IRA, SEP or Keogh contributions, all of which can be made after December 31, 2020). 

December 31 -  Caution! Last Day of the Year

If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

December 2020 Business Due Dates

December 1 - Employers

During December, ask employees whose withholding allowances will be different in 2021 to fill out a new Form W4 or Form W4(SP).

December 15 - Social Security, Medicare and Withheld Income Tax

If the monthly deposit rule applies, deposit the tax for payments in November.

December 15 - Nonpayroll Withholding

If the monthly deposit rule applies, deposit the tax for payments in November.

December 15 - Corporations

The fourth installment of estimated tax for 2020 calendar year corporations is due.

December 31 - Last Day to Set Up a Keogh Account for 2020

If you are self-employed, December 31 is the last day to set up a Keogh Retirement Account if you plan to make a 2020 Contribution. If the institution where you plan to set up the account will not be open for business on the 31st, you will need to establish the plan before the 31st. Note: there are other options such as SEP plans that can be set up after the close of the year. Please call the office to discuss your options.

December 31 - Caution! Last Day of the Year

If the actions you wish to take cannot be completed on the 31st or a single day, you should consider taking action earlier than December 31st.

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Employee Holiday Gifts May Be Taxable

It is common practice this time of year for employers to give their employees gifts. Where a gift is infrequently offered and has a fair market value so low that it is impractical and unreasonable to account for it, the gift’s value would be treated as a de minimis fringe benefit. As such, it would be tax-free to the employee, and its cost would be tax deductible by the employer.

De Minimis Benefits - In general, a de minimis benefit is one that, considering its value and the frequency with which it is provided, is so minor as to make accounting for it unreasonable or impractical. De minimis benefits are excluded from income under Internal Revenue Code section 132(a)(4) and include items not specifically excluded under other sections of the Code. Examples of de minimis benefits include such items as:

  • Controlled, occasional employee use of a company photocopier. 
  • Occasional snacks, coffee, doughnuts, etc., furnished to employees. 
  • Occasional tickets for entertainment events given to employees. 
  • Holiday gifts from the employer to the employees. 
  • Occasional meal money or transportation expenses paid for by the employer for employees working overtime. 
  • Group-term life insurance on the life of an employee’s spouse or dependent with a face value not more than $2,000. 
  • Flowers, fruit, books, etc., provided to employees under special circumstances, such as a birthday or illness. 
  • Personal use of a cell phone provided by an employer primarily for business purposes.

In determining whether a benefit is de minimis, you should always consider its frequency and value. An essential element of a de minimis benefit is that it is occasional or unusual in frequency. It also must not be a form of disguised compensation.

Whether an item or service is de minimis depends on all the facts and circumstances. In addition, if a benefit is too large to be considered de minimis, the entire value of the benefit is taxable to the employee, not just the excess over a designated de minimis amount. The IRS has ruled previously that items with a value exceeding $100 cannot be considered de minimis, even under unusual circumstances.

Holiday Gifts - A gift of cash, regardless of the amount, is considered additional wages and subject to employment taxes (FICA) and withholding taxes. Caution: If the gift recipient is a W-2 employee, the employer may not issue them a Form 1099-NEC or a 1099-MISC for a holiday gift of cash; the amount must be treated as W-2 income.

When an employer gives gift certificates, debit cards or similar items that are convertible to cash, the value is considered additional wages regardless of the amount. However, if the gift is a coupon that is nontransferable and convertible only into a turkey, ham, gift basket or the like at a particular establishment, the gift coupon is not treated as a cash equivalent.

Holiday group meals, cocktail parties, picnics or similar events for employees are also treated as de minimis fringe benefits.

If you have questions about the tax treatment of holiday gifts to employees, please give our office a call.

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