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On-Demand: Updates on PPP and Loan Forgiveness

Nov 19, 2020

We discussed the most recent guidance on the Paycheck Protection Program and implications of recent changes to the program.


Good afternoon. I'm Allen Wilen. I wanted to welcome you to the latest in our series of PPP seminars. We are focusing today on forgiveness and some of the tax issues related to the PPP. Our sessions are adjusting on the fly as new IRS guidance is coming out daily and SBA guidance as well. In fact, the IRS commissioner is testifying tomorrow before the House Ways and Means Committee on some of the PPP issues, and there is a lot of opposition to some of the positions currently taken by the IRS and the SBA at this point. This is our latest guidance that's out there. It is subject obviously to change based upon what happens in Washington and from here, Alan Wink, can you take it from here?

Alan Wink:Thanks Allen, and good afternoon everyone. I hope everyone is safe and sound. Real quickly, I just want to give a brief introduction, a brief outline of what we're going to be talking about this afternoon. Quick introduction to the EisnerAmper CARES Act compliance team, a refresh on the PPP loans, the process of requesting loan forgiveness and what the borrowers can expect, some of the borrower challenges that we've seen our clients exhibit over the last couple of weeks, and the most recent guidance on accounting and tax issues relating to the PPP loans. This afternoon, I'm joined by my colleagues Allen Wilen and Rob Katz.

All three of us are members of the EisnerAmper CARES Act compliance team, and we've been involved with many, many clients discussing both PPP loan origination and now the forgiveness process. A couple of quick facts on PPP loan origination. The last PPP loan was approved on August 8th. There have been approximately 5.2 million loans totaling $525 billion that have been originated. Much to everyone's surprise, the average loan size was relatively small at a $107,000, 87% of the loans were $150,000 or less, and 13% of the loans were above 150,000. As you'd expect, this represented about 75% of the total dollars.

Also, yesterday's Wall Street Journal reported that already about 300 recipients of PPP loans totaling approximately $500 million have already filed for bankruptcy. Of these 300 loans, about 25% were for greater than $1 million. As everyone has been experiencing, there have been many major changes in the PPP program and guidance changes from the SBA since you received your loans back in April and May. Some of the more significant changes we're going to discuss this afternoon, but first the CARES Act originally allocated about $350 billion to assist small businesses. This $350 billion was used up very quickly, and then an additional 310 billion was allocated on April 24th.

Various rules were modified favorably for borrowers as a result of the PPP Flexibility Act, which came into existence on June 5th, and some of the major changes that were brought about by the Flexibility Act were the extension of the covered period from eight to 24 weeks, the change from 75% to 60% in terms of the forgiveness amounts that must be attributable to payroll costs. There were additional safe harbors put in place or FTE reductions. Originally, the maturity of the PPP loans was two years. It was changed to five years. The payment of principal and interest was deferred until the date that the forgiveness amounts are emitted from the SBA back to the lender.

There were three forms put in place to apply for forgiveness, the 3508EZ, the 3508S and the 3508. Owner employees with less than 5% ownership stake are not subject to the owner employee compensation rules, and we will be discussing that a little bit greater detail later in the presentation. Rent payments to a related party are eligible for forgiveness, but are limited to the amount of the mortgage interest paid on the property during the covered period. Just a quick review of what the key terms of the PPP loans were. You remember no personal guarantees or collateral guarantees, no prepayment penalty, minimum loan term of two years, minimum maturity of PPP loans made on or after June 5th were extended from two years to not less than five years.

The PPP loans carry a fixed interest rate of 1% per year, and the deferral period on payment of any principal interest or fees on the PPP loan ends on the date on which the forgiven amount is remitted to the lender after completion of the lender and SBA review process or 10 months after the end of the covered period if no forgiveness application has been submitted by then. The borrower and the lender each have certain requirements and responsibilities during the loan forgiveness application process. Let's talk about the borrower perspective first . Most importantly, the borrower is responsible for the accurate calculation of the loan, the loan forgiveness amount.

As you know, the borrower is eligible for all or partial forgiveness on the loan, plus accrued interest as long as it's used to pay for payroll, mortgage interest, lease, or rent payments, and utilities. You're entitled to loan forgiveness on eligible costs during an 8- or 24-week period or anything in between. Forgivable expenses must be paid in the covered period, or incurred during the covered period and paid before the next billing date. Borrowers seeking forgiveness must complete one of three forms, the 3508, 3508EZ or 3508S and as I said earlier, the borrower was responsible for accurate calculation of loan forgiveness amounts. About a week or two ago, a new form from the SBA came out which was the 3509 or the 3510, which now needs to be completed for all loans greater than two million dollars.

From the lender perspective, the lender is responsible for validation of the borrower's calculation and all supporting documentation. The lender must confirm receipt of the borrower certifications and documentation to support all payroll and non-payroll costs. The lender must confirm the borrower's calculation, except with regards to the 3508S form, and the lender has the responsibility for validating the loan forgiveness application within 60 days and submitting it to the SBA for final approval. The SBA has 90 days to get back to you with the final forgiveness amount. At this point, I'm going to hand the presentation over to my colleague Rob Katz who's going to continue talking about requesting loan forgiveness.

Robert Katz:Thank you Alan and good afternoon everybody. Couple things before we get on to the requesting loan forgiveness. As Alan said, the Wall Street Journal had an article that showed about 500 million of received funds or to companies that are in bankruptcy or declared bankruptcy post receiving the monies and just as a perspective, that equates to only about 1% of the total funds distributed. We will also touch on the 3509 and the 3510 forms later today as the AICPA put a very robust response to those forms and the requirements for during the question period, which I believe is open until the 25th of November. With that said, let's talk about and recap some of the requesting the loan forgiveness.

When can you request the loan forgiveness? At the end of the cover period, the borrower is entitled to the loan forgiveness for the amount spent on the eligible costs during the extended 24-week period. Beginning the day the loans were first received, and that's an important. It's not when the application was made. It's when the wire came in, were received on the first day or the alternative cover period if you choose to select that. If you receive the funds on June the 5th or before, you may elect to use the cover period from eight weeks from the origination date. Those eligible expenses include payroll, which consists of salary wages, vacations, parental, family, medical leave, employer paid health and reimbursement benefits.

They also include rent, mortgage, interest and utilities, and mortgage interest has a special component to it. Same thing with rent, where if it was paid to a related party. What is an alternative cover period? The alternative period allows the borrowers to align your covered period with your own payroll period. In essence, if you receive the money mid-week or mid-cover period, it allows you to not have to split it up, which makes reporting that much easier. The borrowers with a bi-weekly or more frequent period scheduled may elect to calculate the payroll costs using the 24-week period, or for loans received before June 5th at the election of the borrower's 8-week or 56-day period.

The example out to the right is if a borrower is using a 24-week period, alternative period, sorry, covered period and receives its PPP loan proceeds on Monday, April the 20th, and the first day of the pay period following the loan is Sunday the 26th, they can then use the first day of the covered period and the last day would roll out until the Saturday, October the 10th. Then consider the restrictions, and these are very firm. It must be applied whether there is a reference in the forgiveness application to the covered period, or the alternative covered period. However, the borrowers must apply the cover period whether there is a reference to it or not, and it's only generally for the non-payroll cost.

Here are the three forms. The 3508S, its total loan was for 50,000 or less together with its affiliates did not receive total loan funding of two million. The 3508EZ gives you three conditions to use it, and you need to be able to fit into one of them. The borrowers are self-employed and have no employees. There is no reduction in salary or wages and no reduction in FTEs. If you do not fit in those two, then you use the 3508 in schedule A, which is the standard form. Then there's consideration of the safe harbors. Loan forgiveness may be reduced based on reduction employee head counts, or employee wages unless the safe harbor applies.

I want to digress for a moment because people have asked whether you can use a period in between eight weeks and 24 weeks, and the answer is there are multiple answers, but one is you want to try and stay to the boxes that are applied without creating your own exceptions, which will raise red flags. The best alternatives are to use either the eight or the 24, but you can use other periods if you meet these certain conditions. What are the reductions in head counts or wages? If they occurred during the period between February 15th, 2020 and ending on April 26, 2020, it will not reduce the amount of the loan if by no later than the end of this calendar year, the borrower eliminates the head count reduction or wages and can bring the total number of employees back to the pre-levels.

Then there's a reduction in full-time equivalent employees and due to documented inability in good faith to rehire individuals who were employed as of February 15th, 2020 and an inability to hire similar qualified for unfulfilled positions on or before the end of the calendar year. Then the one that has the broadest interpretation is your documented inability to return to the same level of business activity as the borrower was operating before February 15th, 2020 due to compliance with requirements directly or indirectly established by various federal agencies during the period from March 1 through the end of this calendar year 2020 related to the maintenance of standards for sanitation, social distancing, or any other workers or customer safety requirements related to COVID-19.

The exceptions are listed below, but what that is and it's a mouthful, but for instance, if you're a party planning business, you couldn't hold because of the restrictions, you couldn't hold large parties. If you're a Broadway theater, you couldn't have gatherings and the same for movie theaters. Those become a documented reason not to be able to return to those current levels and then finally, let's get to the category. Now you have the payroll where at least 60% of the forgiveness amount must be attributed to cash and non-cash compensation. No more than 40% of the forgiveness amount can be used for non-payroll costs, and expenses must be paid during the cover period or the alternative, or incurred during the period or alternative period, and paid on or before the next regular billing date.

Right for a moment before I turn it back to Alan, one thing that is very important is for preparation, is if ADP is your payroll provider, they have developed three PPP reports that will make filling out the 3508 much, much easier. You can ask your representative for those three reports. Most of the other payroll providers don't have what I'll call a canned report, or not quite as robust or streamlined as ADP. You'll need to allow more time as they are a bit more cumbersome. With that, I'll turn it back to Mr. Wink. Alan?

Alan Wink:Sorry about that Rob. There are three general categories of non-cash compensation payroll expenses that are eligible for forgiveness. The first is health insurance, and this is only employer contributions to employee health insurance programs, also includes dental and vision benefits and excludes any contribution by employees. The second category is retirement plans and once again, these are employee contributions to retirement plans does not include employee contributions. The third category are state and local taxes assessed on employee compensation, such as state unemployment insurance taxes. There are certain payroll related expenses that are not included in forgiveness amounts.

Any compensation of an employee whose principal place of residence is outside the US is not included in forgiveness amounts. Cash compensation of employees above $100,000 annually is not included in forgiveness amounts. Federal employment taxes imposed or withheld are not included, and also qualified sick and family leave wages for which a credit has already been allowed under section 7001, 7003 of the Families First Coronavirus Response Act are not included in forgivable amounts. How should you handle owner's compensation with regard to forgiveness amounts, because there are some caps on these amounts? First of all, owner's compensation has to be separated from cash compensation to employees.

This includes compensation for owner employees, a self-employed individual or active general partners. Owner employees with less than a 5% equity ownership stake in a C or S corp are not subject to the limitations of the owner employee compensation rules. For example, for the 24-week covered period, an owner employee who owns more than a 5% equity stake in the company is eligible for forgiveness amounts the lower of 2.5 over 12 of $100,000 or over 12 of 2019 compensation or self-employment income. For the 8-week covered period, the cap for owner employee is a lower of eight over 52, eight weeks over 52 weeks of $100,000 or 850 seconds of 2019 compensation or self-employment income.

Once again, it's the lower of the two. For example, an owner employee has a cap for a 24-week covered period of $20,833. An employee has a cap for a 24-week covered period of $46,154. As Rob mentioned earlier, reductions in loan forgiveness amounts primarily are the result of reductions in full-time equivalents or wage or salary reductions of greater than 25%. You must look at your FTE reductions during the covered period compared to the base period. For example, if there's no FTE reduction from January 1, 2020 through the end of the covered period or the date of the forgiveness application, you will not be subject to an FTE reduction. That includes no reduction in number of employees, no reduction in average paid hours, so therefore there'll be no reduction in your forgiveness amount.

There are certain exceptions to FTE reductions for which you will not be penalized. For example, if you make a good faith offer to rehire an individual who was an employee on February 15th, 2020 and the employee turns down your offer, you will not be penalized for that. Make sure that that offer is documented, and the employee's response is documented. A good faith written offer to restore any reductions in employee hours, and the offer was rejected also does not subject you to penalty for loan forgiveness. The last category, any employee during a covered period who was fired for cause, voluntarily resigned, or voluntarily requested a reduction in hours, you will not be penalized for that also.

When you submit your loan forgiveness application, certain documentation must be provided with your forgiveness application to support your payroll expenses. First of all, you need to submit a payroll report for each period of your covered period listing each individual employee covered. As you know, your payroll providers, most of them are very familiar with the loan forgiveness application process and certainly can provide you with the appropriate payroll information reports for your covered period. In addition, you need payment receipts, canceled checks, or account statements documenting employer contributions, the health insurance programs and retirement plans.

In addition to payroll reports, other documentation is necessary to evidence payroll expenses. You must submit your payroll tax filings, typically your form 941. You must submit state quarterly business and individual wage reporting and unemployment insurance tax filings. You must submit taxable Medicare wages and tips to US employees from form 941 for each quarter, plus pre-tax employee contributions for health insurance or other benefits excluded from taxable Medicare wages, minus any compensation amounts paid to an individual employee in excess of $100,000. In addition, you must submit employer health insurance contributions, retirement contributions, state and local taxes assessed on employee compensation, primarily state unemployment taxes.

In addition to cash and non-cash compensation, certain other non-payroll expenses are also eligible for forgiveness. These non-payroll expenses cannot exceed 40% of the forgiveness amounts. They fall into three general categories.

Allen Wilen:Hey Alan, it's Allen Wilen. Before we get there, I just wanted to raise. There's a whole host of questions out here in the Q and A related to if I qualify with just payroll, do these non-eligible payroll expenses really matter? Should I file them anyway just to show that I'm far in excess, or do I just stop the stop here if my payroll costs cover my loan?

Alan Wink:Great question. Rob, I was going to just answer real quickly. Allen-

Robert Katz:Go ahead.

Alan Wink:Basically, we have seen clients ask this question all the time. The reality is that once you've far exceeded the amount of your loan and you've done that with payroll only, and a lot of people are doing that because of the extension of the covered period, it really isn't necessary to add anything for rent or mortgage interest or utilities.

Robert Katz:I'll also add something to that too, and the other side of that though is the concern which I've heard from certain banks, is that if you don't fill those in, sometimes it may seem like the application is incomplete. The other thing too is if you have an auditor that is picky and you show all the categories, it gives you more coverage. it is more work, but it may at the end be worth it. If you're not going to use the other categories, you just may want to indicate that so the reader which is the bank understands it wasn't omitted, but it was omitted with reason. Sorry Alan.

Alan Wink:Just to continue on, so in terms of the eligible non-payroll expenses, rent, and lease expenses, mortgage interest, and utilities and once again, these non-payroll costs must be paid during the covered period, or incurred during the covered period and paid before the next regular billing date. Let's spend a moment talking about rent and lease expenses and once again in order to get forgiveness, the rent or lease has to be put in place prior to February 15th of 2020, or renewed after that date. When we talk about rent, it could include warehouse rent. It could include the lease on a delivery truck or the lease on a server used exclusively in your business.

With real and personal property, the rent or lease must be net of any sub-lease income and allocated amongst all businesses sharing the space in the same manner as your 2019 tax filings. We spoke earlier about related party rent. Related party rent, you're eligible for forgiveness, but it's limited to the amount of the mortgage interest owed on the property during the covered period that is attributable to the space being rented. Something to consider here if the related party that you're renting your space from does not have a mortgage on that building, you are not eligible for any forgiveness on those amounts.

Just to give two other examples for a self-employed individual or independent contractor, the rent or lease amount must have been claimed on your 2019 form 1040 schedule C. For a partnership, the rent or lease in order to be eligible has to be deducted on a business tax return. Similar to rent and lease expense in order for mortgage interest to be included, the mortgage must have been executed prior to February 15th, 2020 and principal payments and interest prepayments on your mortgage are not included. Once again for the self-employed or independent contractor, mortgage interest must have been claimed on your 2019 form 1040 schedule C to be eligible.

For a partnership, the mortgage interest must be eligible to be deducted on a business tax return. Utility expenses, once again the service had to be put in place prior to February 15th, 2020. Utilities fall into several categories; water, gas, electric, telephone, internet and company mobile phones, and transportation utility fees assessed by state and local governments. Once again for the self-employed independent contractor, these expenses must have been claimed on your 2019 form 1040 schedule C. In order to be eligible for a partnership, utilities must be eligible to be deducted on a business tax return.

What's required to support non-payroll expenses? Invoice from the provider, a contract that shows that it was in effect prior to February 15, 2020, evidence of payment which could be a canceled check, a wire payment, or account statement. Just make sure that your supporting documentation in terms of name, address, et cetera agrees with all the information from your provider agrees to your application for forgiveness. I want to hand it back to Rob who's going to address borrower challenges.

Robert Katz:Thanks Alan. Again, talking about some of the hot items about borrower challenges, I discussed a little bit earlier about what is the appropriate periods right and considering the applying the safe harbors, and by the way, there are no forms for the safe harbor so it would be a supplemental attachment, determining the proper allocation in the form. Again, what I have seen or what we've seen is some people like the short form, some people don't, right? Some people want to provide some additional detail. If you qualify, you use whatever is you're most comfortable with. The calculating the payroll in the FTE and wage reductions. Again, if you were if you're fortunate in this case to have ADP, they do most of the work for you.

If not, you'll just have to pay extra attention to make sure that the FTEs and the change are properly accounted for, and to also make sure that your 5% owners are in a separate category because they have different restrictions, and to make sure it's appropriately categorized. That goes to the employee categorization of the over 5% owners and again, understanding and applying the reduction, rules, and exceptions. Identifying what non-cash compensation is, also with medical benefits and health to make sure the employee portion that they pay is reduced or excluded. Again providing the complete documentation is important, because if your hope is to get it forgiven quickly and you don't supply something and each bank is slightly different, it will slow down the process.

It's important to understand from your particular lender, what are some of the additional requirements they may have that aren't standard, because they're allowed to ask for more detail. There have been questions, and one of the topics is timing of applying forgiveness. The IRS came out with something, I believe it was last night it suggested while the expenses are not deductible, but you should have begin applying for forgiveness as soon as possible. The other side of that is if you're early, and the laws continue to change as recently as last night, there were called two pronouncements being handed down. One form is still under review, right? If you apply early, you may have to supplement it, or do it later.

It's better it seems to me to have a complete requirement package, and then go into supplying it or applying. Because from the time that you finished your covered period when you use the money, if it was 24 weeks, you then have 10 months to submit the application. Your lender has 60 days to review it, and the SBA has another 90 days to review it. From the time you finish using the money, you could have 15 months before it's ultimately approved, and that goes to the timing. Now completing the SBA questionnaire which is the new form 3509 and 3510, and it is presently out for comment. This form as the comment period says now, or the new form, the lender will provide it to you.

Once the lender does, the borrower has 10 days to complete. One of the concerns is this provides or this is requesting more details to support what was FAQ 31, and that is that you needed the loan and you had little to no alternative. One of the concerns or questions that has come up is if you're a non-for-profit on the 3510, there's a question about your unrestricted endowment. For instance, if you receive the loan, let's say, it's in excess of $2 million and you have a 10, 15 or a larger unrestricted endowment, the question that you're tentatively now have to answer is if you had that available, wouldn't that qualify as money's available and not the last resort?

That's a question that right now will need to be addressed, and it's something for team members to think about. The 3509 is also very similar type questions. Then we go on to some of the accounting and tax treatments that Allen Wilen spoke of, that the SBA nor the FASB has provided one exclusive accounting treatment for the PPP loan forgiveness, and it's similar to a government grant delivered in the form of a forgivable loan. The loan proceeds are booked as a liability. One of the situations that we've seen is we have a client, I do, where they received a $2.9 million PPP loan and they've got all the documentation appropriately documented, that they should get 100% forgiveness, but if it's treated as a loan, they will trip a covenant.

If it's treated as a forgiveness, they will make the covenant. They've already given the bank guidance that there's nothing more they can do right now. It's in the application process, but to make sure the bank understands the difference right now of either making or missing that covenant is out of their hands. In this case, the lender was very appreciative that they communicated this early, rather than later. Then we get into the IRS issues, the revenue ruling that came out last evening. Qualified deductions are not deductible in 2020 if a reasonable expectation and as we say here it's not yet defined of the loan forgiveness in 2021 exists.

Even if a loan forgiveness application has been submitted or not by this calendar year in 1231, the safe harbor begins of forgiveness ultimately is denied or never applied for. In that case, most of the people or entities applying I believe think they're going to get forgiveness. Deductions are then allowed if again you're going to say the forgiveness was denied or never applied, then it's deductible. Do you want to take that into consideration, which maybe you do and show it as a 1% loan, because even a 1% in today's world is pretty darn good. Then most people are talking about extended the returns, or then ultimately again, if you run to make application, you may have to file an amended return.

We did talk about the impact on the financial covenants and making sure the presentation to stakeholders is considered. One other example is there was a professional services firm that did again obtained a large PPP loan that needed it and met the specific FAQs, and then some of the partners were looking for distributions before formal forgiveness has been done or achieved. The conversation we had is basically once you make distributions, in my experience that it's really hard to get them back. You're better off waiting, again unless you want to chase down people if in the worst case, you don't receive the full forgiveness.

Allen Wilen:Rob, it's Allen. I want to explain in a really simple situation to folks on the phone. Let's give an example of cash basis taxpayer and the impact of last night's ruling to them, is that if I have a cash basis taxpayer, your typical professional services firm, a small law firm, an engineering firm, the impact is going to be quite negative to you of not being able to take those deductions this year, because what's going to happen is, is that you will have collected receivables that were generated last year or in the first quarter of this year during the year, and not be able to take your payroll deductions at all, or you rank deductions that you want to take for those employees up to the amount of your PPP loan.

You'll have to carry the PPP loan as a liability going into next year, but you're going to have significant taxable income this year potentially, that next year when the loan is forgiven will effectively reverse itself because you probably don't have a significant AR being generated this year because of the impact to your business in the current year. Next year, you'll wind up reversing some of that, but the problem is going to become a taxable income impact this year that you'll have to get back or offset next year, and that's going to be a cash flow impact to a lot of folks. That's the impact of last night's ruling.

There is still a debate on that issue that is going forward in Congress, because there's a big push back on that issue because there is some tax case law history in the past that has shown that deductibility should be tied into the period in which everything occurs. Therefore, this position is a very aggressive position by the government, at least as it relates to the deductibility. I just wanted to make sure everyone was aware of that issue and understand the impact of it to especially a cash basis taxpayer.

Robert Katz:Well, and I think too Allen and it's a great point when the money came out in April and May entities and certainly just saying I need the money to survive. Now that summer passed the threshold in some are doing better than they had projected at all, it becomes a real consideration and again does the 1% loan seem to be potentially a better thought or not a better, but a worth considering and then modeling the various alternatives because right now, there's basically three, four, five months, they're not five months, but certainly four months til those become due, and it's really important to get out in front of it.

Allen Wilen:I just want to get ahead of a question that was just asked, because I think it's important. Someone asked the question of whether you include the PPP money into income, but not deduct any expenses, and the answer is you don't include the PPP in income. I wouldn't pick up the PVP in your income this year.

I call it a loan and that's how I book it on my book says a loan, which has no impact on income from a tax perspective, but the problem you're going to have just to explain it further the couple questions I got there, is that if you're collecting significant amounts of cash out of your receivables, especially cash-based taxpayer, you have to record that income this year that may have been based upon work performed last year, with no corresponding payroll expense and rent and utility expenses to offset that income. You will have higher income than you expected this year as a result of it.

The other issue Rob that I think we should discuss real quickly is this concept of necessity that they're asking for in the representation from people, and there is some significant debate on that issue, if you made that representation at the time you took out the loan because you didn't know what was going to happen with your business going forward, and your business then went ahead and actually stayed afloat and continued on and did well, should you be penalized for that because that was the actual intention of the PVP loan in the beginning, was to keep businesses afloat during this period? That will be an interesting dilemma, and that goes back to the theory we have, which is I would not rush towards forgiveness right now.

Alan and Rob, if you want to comment on that as well, you have time. Even if you get all your application information right now to the IRS, the SBA is sitting in a holding pattern. Robs has an example of a client that he could probably talk about that submitted everything to the SBA through their bank and approved and is still sitting out there.

Alan Wink:Allen, an interesting comment about holding off on filing your application. I think if you go back and look at the history of the PPP loan program, most people that have waited to take action have benefited. I think most guidance changes in the future I think are going to be beneficial for the borrower, go back and people who got the loans in the first tranche and spent it over eight weeks, and then it was extended over 24 weeks were not able to take advantage of that.

The other point is relative to the need certification, just remember that the SBA came out with guidance probably three or four months ago that said all borrowers of loans less than $2 million were deemed to have filled out the need certification correctly, because they felt that borrowers at that size did not have access to other forms of liquidity in a quick manner. Just keep that in mind. As Rob said, the 3509 and the 3510 both forms or for loans greater than $2 million.

Robert Katz:Yeah and Allen and Alan, it's a great point. To Allen Wilen's comment, a change in circumstance is different than the definition of need, right? I can give two examples did hold true. I'll say manufacturers who build swimming pools. In March, you come out, it's the winter. They should be getting busy. They're thinking their business now, nobody's going to spend any money, they're going to hunker down. They rightfully so applied for the loan, didn't have a lot of alternatives, but yet again what turns out with their business is people weren't traveling. In fact, they had a nice year relatively speaking, because more people were building pools.

When they applied and to me, the definition of need again, if you look at FAQ 31 which is one of the early questions or answers does outline in a very narrow productive way what exactly the IRS and the SBA define is need. Then the other circumstance that Alan had mentioned is there is a client with the change of control. They had real reason if you've been following the SBA, you know that private equity firms are taboo. The buyer was a private equity firm, so they won't take control, and it was a $3 million loan was forgiven, until they got the SBA sign off. The client notified the president of the bank. They went through the process at the bank level, got forgiven, couple follow-up questions that were answered.

It's been sitting at the SBA since late August. It's been there maybe September. It's been there for 60 days and they have a true need and it hasn't moved. I think like Alan Wink said basically, right now, it can't get any more conservative, right? The expenses aren't deductible, so it can't be like it becomes negative. Again, having a little bit of patience which is really tough to see where it falls out seems to be less downside than rushing to try and get it done under some of the uncertainties that currently exist.

Allen Wilen:Let me take a shot at and go through some of the questions that are asked, and I apologize if we don't get through all of the questions. We have 100 and something questions at this point in time, but I wanted to pick out some of the questions that really that jumped out at me. Rob, one of them was somebody asked a question of what exactly should they be asking ADP for in the way of reports? Is there a specific report name that they should be asking for?

Robert Katz:Yes, the answer is there are three specific reports, and they are all forgiveness reports. Allen, if you move on to another question, I will get the name of those reports.

Allen Wilen:Sure, okay. On the 3508EZ, do I need to meet all three requirements or just any one of those requirements?

Alan Wink:Allen, the primary requirement is that you've had no reduction in full-time employees, or no reduction in salary or wages for any employee greater than 25%. That's the primary use of the 3508EZ.

Allen Wilen:Okay. Next question is, how would you confirm that a company couldn't resume operations by 12/31/2020, and the example given here was somebody who is a concert promoter or a show promoter.

Alan Wink:Allen, a great example and the rationale there is that the state and local authorities did not allow those performances to go on, so they were really prohibited from going into business. They were basically closed down because of government regulation surrounding COVID-19.

Robert Katz:Yeah, and I think to what Alan just said, it's spot on and I think too you. You look at certain jurisdictions are different. In Philadelphia, they opened up that you could have 5000 or 6000 people at an Eagles game, and now they've just said no. They opened it a little bit, and they re-shut it down. To pull up the justification that you can only have a 20% attendance and now at zero, it's not totally definitive, but again I think with the things and reductions of FTEs and the safe harbors, certain industries and cities, it's much easier and it's just having a good narrative and with some specifics about it, and that gave me enough time to find the three reports.

The three reports, they're called PPP loan forgiveness wage comparison report. It's a wage comparison report, and a payroll cost report, and a full-time equivalent comparison report, and a shout out to Henry Vargas and Saul Baumann in our compliance group who have done great work on those specific reports. Again, it's a wage comparison report, it's a forgiveness payroll cost report, and a full-time equivalent comparison report, and you can customize them. You can put the specific dates of whether it's in eight or 24 weeks in, so that ADP or you can run those reports.

Alan Wink:Rob, just to add to that, just a point of advice for everyone is when you look at your FTE reductions, spend the time to analyze it and look at the ones that are employees that were terminated for cause, employees that might have resigned, employees that ask for reduction in hours, because maybe your penalty will be much less if you do the analysis correctly.

Allen Wilen:Okay. A question, how do part-time employees calculate into this?

Alan Wink:Well, basically you can do it based on an allocation of hours, Allen, or you could take anyone who works less than 40 hours and include them as half an employee.

Robert Katz:Alan is spot on. As Alan said, you look at all alternatives. You can use which of those two calculations are more beneficial and the 3508 ask you to consider both or calculate both.

Allen Wilen:Correct. Somebody asked question of, so could a company now decide in good faith to not apply for forgiveness and just deduct the expenses in their 2020 tax return, and then revisit the issue in 10 months?

Alan Wink:You say revisit the issue of forgiveness?

Allen Wilen:Yes.

Alan Wink:It's a very, very interesting question. I assume and once again, that guidance on this particular topic has not come out yet, and it really is a good question. I might look at a little bit differently, and Allen you were alluding to it before. You might have people from a tax point where not applying for forgiveness at all is a better alternative than just accepting a 1% loan for five years and deducting the expenses like you normally would.

Allen Wilen:Mm-hmm (affirmative). With that, we've hit our allocated time here. I did want to apologize if there are other questions that have not been answered. We do have a PPP response location on our firm's website. Lexi, if you could send that out to everyone when you send out the survey, they'll be really helpful. If people have questions, they can hit to the response team, and we can get back to folks.

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