Archive for the ‘SBA’ Category

PPP: When Free Money Isn’t So Free

Friday, May 1st, 2020

The Paycheck Protection Program (PPP) loans seem too good to be true. You get money for paying employees and necessary expenses, and they might not have to be repaid! It’s free money.

Well, not so fast.

Yesterday, the IRS released Notice 2020-32. The notice, which runs seven pages, can be boiled down to one very long sentence:

Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.

In English, if your PPP loan is forgiven, you cannot take a deduction for any expenses related to the income that isn’t taxable. Now, how forgiveness is determined isn’t certain at this point, but the IRS’s view is that expenses that result in tax-exempt income aren’t deductible.

So let’s say you have a loan that is forgiven of $10,000. Is it better to pay back the loan (the interest rate is 1%), and not lose the tax credits for employee retention, or lose the business expenses and tax credit? Since we don’t yet know the full details on forgiveness it’s not possible to say much more here, but I strongly suspect the answer will be, “It depends.”

Senator Chuck Grassley (R-Iowa), chair of the Finance Committee, wasn’t happy with the IRS decision. He’s quoted in the Wall Street Journal: “The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible. This notice is contrary to that intent.” So it’s possible Congress will override the IRS’s view on this. We will just have to wait and see.

Professional Gamblers (and Other Gambling Businesses) Now Eligible for PPP Loans

Friday, April 24th, 2020

The Small Business Administration today released new guidance on the Paycheck Protection Plan (PPP) loans. Included in the guidance is an FAQ that states:

Are businesses that receive revenue from legal gaming eligible for a PPP Loan?

A business that is otherwise eligible for a PPP Loan is not rendered ineligible due to its receipt of legal gaming revenues, and 13 CFR 120.110(g) is inapplicable to PPP loans. Businesses that received illegal gaming revenue remain categorically ineligible. On further consideration, the Administrator, in consultation with the Secretary, believes this approach is more consistent with the policy aim of making PPP loans available to a broad segment of U.S. businesses.

This means that as of today professional gamblers are now eligible for PPP loans. If you’re a professional gambler and are out of business, now is the time to apply with your bank. While there was additional funding for PPP loans approved this week, it will likely be used up quickly. Do note that if you partake in any illegal gambling activities you remain ineligible for PPP loans.

Additionally, small pubs with gambling activity (very common here in Las Vegas) are eligible for PPP loans.

Can a Professional Gambler Apply for a PPP or EIDL Loan?

Tuesday, April 7th, 2020

The CARE Act added Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) for businesses to recover from the COVID-19 pandemic. A question many of our clients have asked is, “I’m a professional gambler. Can I apply for one of these loans?” The answer is no.

It’s not as if a professional gambler can gamble in most locations today (casinos are closed everywhere, though those residing in states with online gambling can partake), so professional gamblers are being impacted. The problem is a regulation adopted in 1996. From 13 CFR § 120.110 (What businesses are inelgible for SBA business loans?). 13 CFR § 120.110(g) states:

Businesses deriving more than one-third of gross annual revenue from legal gambling activities.

(All illegal activities are ineligible per 13 CFR § 120.110(h).)

The American Gaming Association wants this changed; it also prevents small casinos, such as those in South Dakota, from applying for these loans. But changing a federal regulation takes time. The change must be published in the Federal Register, comments must be taken, etc. It’s a near certainty that the COVID-19 emergency will be long past when the regulation is changed (and that assumes the SBA decides to make a change).

Is this fair? No. But it’s reality.

Seniors Won’t Have to File Tax Returns, SBA Loan Update, and New Jersey

Thursday, April 2nd, 2020

Earlier this week the IRS posted that to obtain the Recovery Rebate that seniors and others would have to file a tax return. When news of that got out–especially given that the law that was passed says otherwise–organizations representing seniors and tax professionals were not amused.

Late yesterday, the Department of the Treasury issued a press release titled, “Social Security Recipients Will Automatically Receive Economic Impact Payments.” Treasury Secretary Steven Mnuchin stated,

Social Security recipients who are not typically required to file a tax return do not need to take an action, and will receive their payment directly to their bank account.

The IRS website has also been updated with this information.

Next, small businesses and sole proprietorships impacted by the virus can apply for loans under the federal Paycheck Protection Program starting Friday, April 3rd. From the Journal of Accountancy:

The application can be found here on the Treasury site, along with details for borrowers and lenders. Treasury urged those in need of funding to apply quickly, noting that the program has a cap and demand is likely to be high.

Independent contractors and the self-employed can apply beginning April 10th. The program has a cap of $349 billion.

Finally, New Jersey has extended their tax deadline to July 15th. It’s unclear if New Jersey has extended estimated tax payments (as best as I can tell, they haven’t). This extension is for both individual and corporate tax which was due on April 15th.

A Catch-22 On SBA Loans

Tuesday, March 31st, 2020

catch-22 (noun): A dilemma or difficult circumstance from which there is no escape because of mutually conflicting or dependent conditions.

The CARES Act allows for all sorts of SBA (Small Business Administration) loans to help with the virus pandemic. Sounds good, right? There’s just one catch: You must submit a Form 4506-T with your loan application. The SBA wants to look at your tax returns (which makes sense).

There’s a problem here: The IRS system used to process Form 4506-T’s is closed because of the virus situation. These forms go through the IVES system (Income Verification Express Service). That system is currently offline. In my most recent “Update on Practitioner Services” sent by the IRS last Friday:

The IRS is temporarily suspending acceptance of new Income Verification Express Services (IVES) requests at this time and is experiencing delays with existing IVES processing ….

Hopefully, IVES will come back on line quickly or those speedy SBA loans won’t be speedy at all.