FAQs & Answers From The PPP Task Force
We receive many questions from business owners and nonprofit leaders every day and take care to answer them as quickly as possible. This has been our way of working through PPP 2.0 as well. However, since presenting a webinar on PPP 2.0 in January entitled: “What Does The New Stimulus Bill Mean For Businesses?” we thought it would be a good idea to share some of the frequently asked questions we’ve received with you. Read on to find answers to the following questions:
- What is a covered operating expenditure?
- Will the recent Workers Compensation Rebates be included in gross receipts?
- What is meant by “Reduction in Gross Receipts?”
- “Is the $150K figure an aggregate between the PPP 1.0 and PPP 2.0, or will it be looked at separately?
- What documents should be provided when applying for PPP 2.0? If a company is applying for PPP 2.0 following a successful PPP 1.0 application, will the supporting documents already be on file?
- Do you think it’s likely for a business operating in the entertainment or foodservice sectors to Be eligible for 3.5x 2019 average payroll costs?
- Are 501(c)(6) organizations eligible for PPP 2.0?
What is a covered operating expenditure?
According to the Interim Final Rule (IFR), the proceeds of a PPP loan are to be used for payroll costs, costs related to the continuation of group health care, life, disability, vision, or dental benefits during certain periods, mortgage interest payments, rent payments, utility payments, interest payments on debt obligations incurred before Feb. 15, 2020, refinancing an SBA EIDL loan made between Jan. 31, 2020, and April 3, 2020, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures. Now, this is not the full list. However, if you are interested in viewing the many ways PPP loans can be used, view this document detailing the Paycheck Protection Program as Amended by Economic Aid Act. The list begins on page 48.
Will the recent worker’s compensation rebates be included in gross receipts?
The Bureau of Workers Compensation (BWC) has clarified that there is no difference between refunds made earlier in 2020 and those made in December. All of the premium refunds should be included in gross receipts for the purpose of PPP 2.0 eligibility until further guidance is received by the Small Business Administration (SBA).
What is meant by “reduction in gross receipts?”
Per the IFR, gross receipts must be the method used on your tax return. Generally speaking, according to the IFR Subsection (C)(2), gross receipts includes all revenue regardless of how it was received or accrued (in accordance with the entity’s current method of accounting).
Therefore, if you’ve used the accrual method of accounting, for example, you’d have to stick with it. Also, keep in mind that the necessity requirement outlined on the PPP 2.0 application states: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
To further illustrate what your gross receipts might include, consider income generated by the sales of products or services, interest, dividends, rent, royalties, fees, commissions, etc.
For the most part, receipts are going to be considered “total income” plus “cost of goods sold,” excluding net capital gains or losses. Because net gains or losses have a home on the IRS’ tax return form, therefore they are not included in “total income.” Also, for clarification, in the case of a sole proprietorship, independent contractor, or self-employed individual, these “total income” receipts would make up your “gross income.”
On the other hand, gross receipts do not include taxes collected for and remitted to a taxing authority if they were included in your gross or total income. This might pertain to any sales taxes collected, for example. Your gross receipts will also not include proceeds from transactions between an entity and its domestic or foreign affiliates as well as any amounts collected for another by an organization operating as a travel agent, real estate agent, advertising agent, freight forwarder, customs broker, etc.
We understand this can get confusing. Feel free to reach out to a member of our team for additional insight and clarification.
Is the $150K figure an aggregate between the PPP 1.0 and PPP 2.0, or will it be looked at separately?
PPP 1.0 and PPP 2.0 (also known as the “second draw loan”) will be treated separately. This includes the $150K referenced.
What documents should be provided when applying for PPP 2.0? If a company is applying for PPP 2.0 following a successful PPP 1.0 application, will the supporting documents already be on file?
Each lender may be somewhat different when it comes to their requirements pertaining to supplementary materials requested, particularly as it relates to proving revenue decline. However, some of the basic information required will be the same information requested during the PPP 1.0 application process.
We work with many different bankers and have some insight into what they normally as for. Based on our current knowledge, we would think that most bankers will ask applicants to submit an entirely new package when applying for PPP 2.0.
Click here to view the PPP 2.0 Application Form.
Do you think it’s likely for a business operating in the entertainment or food service sectors to be eligible for 3.5x 2019 average payroll costs?
This would depend on your NAICS code. If the NAICS code on your tax return begins with 72, then you would be eligible for 3.5x payroll. Also, keep in mind that there is $15 billion set-aside in the legislation for “shuttered venue operators.”
Banks/lenders will need to be aggressive when it comes to helping organizations that fall into this category. The Small Business Association (SBA) is really trying to force lenders to fill that bucket, so to speak.
Is it better to use non-payroll as such as possible for loan forgiveness to qualify for more ERC?
If you are referring to your original PPP 1.0 loan, then yes – this wouldn’t be a bad strategy. However, keep in mind that payroll costs must account for at least 60 percent of the use of PPP funds. For those considering PPP 2.0, or second draw loan, I’d give strong consideration to the necessity requirement, which states: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
Is there funding available for businesses that started having payroll in 2020?
Yes – potentially. The IFR states: “If the applicant was not in business during 2019, but was in operation on February 15, 2020, the applicant had gross receipts during the second, third, or fourth quarter of 2020 that demonstrate at least a 25 percent reduction from the gross receipts of the entity during the first quarter of 2020 (for example, an applicant that had gross receipts of $50,000 in the first quarter of 2020 and had gross receipts of $30,000 in the fourth quarter of 2020 – demonstrating a reduction of 40 percent from the applicant’s gross receipts during the first quarter in 2020).”
Can we assume that foreign workers’ wages should be deducted when calculating payroll costs?
Yes – these wages must be excluded. The IFR states that “aggregate payroll costs for employees whose principal place of residence is the United States.
Are 501(c)(6) organizations eligible for PPP 2.0?
Absolutely. “Any organization that is described in section 501(c)(6) of the Internal Revenue Code and that is exempt from taxation under section 501(a) of such Code (excluding professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other activity) shall be eligible to receive a PPP loan as long as other eligibility requirements are met and if: (1) the organization does not receive more than 15 percent of its receipts from lobbying activities; (2) the lobbying activities of the organization do not comprise more than 15 percent of the total activities of the organization; (3) the cost of the lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year of the organization that ended prior to February 15, 2020; and (4) the organization employs not more than 300 employees.”
If you would like additional insight into PPP 2.0 and other resources available to your organization, check out these resources:
[ARTICLE] Having Problems Claiming The Second Draw PPP Loan?
[ARTICLE] How The Consolidated Appropriations Act Will Impact Your State & Local Tax Filings
[ARTICLE] Understanding The Tax Provisions Outlined In The New Stimulus Package