Partners S. Scott Seamands and Stanley Woo hosted our quarterly virtual affordable housing roundtable, along with our client Mutual Housing of California. We have hosted these quarterly roundtables since the early 1990’s but in the current environment the roundtables have become virtual meetings. This quarter we outlined the issues related to obtaining loan forgiveness and other aspects of the SBA Paycheck Protection Program (PPP). We also provided an update on several tax changes for affordable housing entities under the CARES Act and their impact.
It was a timely discussion because Congress had just passed the Paycheck Protection Program Flexibility Act (PPPFA) a few days prior to our June 9, 2020 event. The PPPFA is intended to give loan recipients more flexibility for use of funds and the forgiveness calculation. One day prior to the event the SBA announced another change in the forgiveness formula. Since changes are happening rapidly, we will continue to monitor them and make timely announcements.
We covered aspects of the new forgiveness calculation and took questions from affordable housing leaders about their specific situations.
In particular, we addressed aspects of:
- payroll allocations and reimbursements, including government grant funding, involving multiple affiliates reimbursing the PPP loan recipient ;
- the FTE and salary reduction calculations;
- documentation to submit along with the PPP forgiveness application, and;
- how to reduce costs if the borrowing entity also received an Economic Injury Disaster Loan advance, or other reimbursements that could jeopardize forgiveness by ‘double-dipping’.
Walking through the current PPP loan forgiveness application, Julie Goldfine, Chief Financial and Operating Officer of Mutual Housing California, discussed the fact that her organization received an EIDL advance as well as PPP funds, and she will reduce their requested PPP forgiveness amount by the amount of EIDL advance funds — as required under the CARES Act.
Also, under the Families First Coronavirus Response Act, paid leave was granted to employees for COVID-19 related illnesses or other issues for themselves or dependents. For that paid leave, the employer receives a credit against federal payroll taxes, which can also impact the amount of PPP loan forgiveness.
There were several other issues discussed related to the PPPFA legislation, such as:
- Reduction of use of funds from at least 75% for payroll related expenses to at least 60%; with additional guidance stating that partial forgiveness may still be available if less than 60% of funds are used for payroll.
- New guidance on the eligibility of PPP loan recipients to now have the ability to defer the employer share of payroll tax under the CARES Act until 2021 and 2022.
- Extension of the covered period for use of PPP funds from 8 weeks to an election of up to 24 weeks. It was unclear whether the alternative covered period could still be elected within the extended 24 weeks.
PPP Forgivable Loan Accounting
During the roundtable, we walked attendees through sections of the current PPP loan forgiveness application and instructions, and we pointed out areas that will be updated due to the PPPFA.
One of the big questions by attendees was whether they could allocate payroll costs from the property management company to related entities and still apply those payroll costs to PPP loan forgiveness when the property management company was the PPP loan borrower. We cautioned that allocating costs to other entities could look as if the direct compensation costs reported on Form 941 for the property management company was ultimately not a cost incurred by that company, jeopardizing any forgiveness.
Even if the management company later forgave the allocated payroll costs, any perception of potential payroll reimbursement by a third party might still be considered double dipping by the SBA. We discussed different scenarios for handling these issues, including forbearing charging payroll costs to affiliates during the covered period.
Tax Changes Related to CARES Act
Under current guidance, payroll and other allowable business expenses that are reimbursed as part of PPP loan forgiveness will not be tax deductible for 2020. Although Congress is still debating that aspect of the Act, it remains to be seen how the IRS will respond after issuing Notice 2020-32. The AICPA has argued that if a PPP loan is not considered income, then forgiven expenses covered by those funds should still be deductible.
LvHJ Partner Stan Woo covered other tax-related impacted of the CARES Act, including:
- Temporary changes to IRC Sec. 163(j);
- RPTOB elections and temporary ability to withdraw previous elections;
- Amended returns by partnerships, and;
- Timing for claiming LIHTC credits under the CPAR.
The full recording is available here to review these areas for your organization. Note: the recording does have some noise disruption due to the live, virtual conditions for the roundtable. Please bear with us, and let us know if you have any questions specific to the topics we presented by contacting us at firstname.lastname@example.org.
You may also be interested in our blog post about the PPPFA.