Note: This guidance was sent as a client alert on April 10, 2020 and the information is current as of that date.
Loan Updates and Tax Deadline Extension Expanded
Guidance and relief continue to be corrected and added at an unprecedented pace. We appreciate everyone’s understanding that tax return processing timelines are longer than usual as we interpret the guidance and ensure clients are receiving the information and funding they need as quickly as possible. The highlights of this update are:
- Second quarter federal estimated tax payments have been extended to July 15th
- PPP and EIDL loan processes continue to move slowly at the SBA and banks. Common issues highlighted.
- The IRS will receive an additional 30 days to take action on processes, like audits, that have deadlines between April 6th and July 15th.
- The Treasury Department introduced a new loan option, the Main Street Lending Program, aimed at mid-size businesses.
Paycheck Protection Program Loans – General Updates
The Paycheck Protection Program (PPP) Loan applications are now available at most banks and Credit Unions. However, many banks are still not receiving final approval on loan funding from the SBA. Yesterday, the additional funds requested by Treasury Secretary Mnuchin failed to pass in the Senate. Congress will again attempt to allocate additional funds for the PPP Loan program next week. As of April 8th, $100B of available funds had been allocated. This means that the majority of funds are still available but may be exhausted more quickly than Senator Rubio predicted last week. We still don’t expect the fund to reach its cap within days, but it is possible that the cap will be reached within the next couple weeks if an increase is not approved.
Common Issues we have seen with the PPP and EIDL Loans
Funding Timeline (EIDL): This program is funded directly by the SBA and is typically able to provide loans within days of a successfully completed application. Due to the high volume of applications, this process is taking much longer than typical, and the SBA has removed the specific funding timeline language on their website and replaced it with “funds will be made available following a successful application”. The SBA has not provided an updated timeline publicly. We will continue to monitor these loans and provide updates as they become available.
Funding Timeline (PPP): Bankers that we have spoken with expect loan proceeds to be deposited in borrowers accounts within 10 business days of loan acceptance. This is a longer timeline than initially promised.
Business Bank Accounts (PPP): All banks we have spoken with are only taking applications from current business clients. Banks are defining “current business client” most commonly as having an active business checking account. This has caused issues for some sole proprietors or contractors, who utilize bank accounts that are categorized as “personal” accounts by banks. Unfortunately, until Congress, the SBA, or the Treasury Department takes action this is unlikely to change.
Guaranteed Payments (PPP): We have no guidance on the treatment of Guaranteed Payments to partners for PPP Loan purposes. We suggest businesses with significant guaranteed payments consider waiting for additional guidance prior to applying for a PPP Loan.
Self Employed (LLC or Sole Prop) with employees (PPP): We have no guidance on the treatment of Self Employed (LLC or Sole Prop) with employees for PPP Loan purposes. We suggest businesses structured as Single Member LLC’s (not S Corporations) with net profits and payroll consider including the net profits and wages or waiting for additional guidance prior to applying for a PPP Loan.
Extension of Tax Deadline Expanded
Taxpayers were granted additional, broad tax filing and payment deadline relief by the IRS late on Thursday. The new relief, issued in Notice 2020-23, applies to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020, including individuals, trusts, estates, corporations, and other noncorporate tax filers, and that period will be disregarded by the IRS in calculating any interest, penalty, or addition to tax for failure to file the forms specified in the notice. The key items that were expanded are:
- 2Q2020 Federal Estimated Taxes: The notice postpones the June 15 deadline for estimated tax payments to July 15.
- Unclaimed 2016 refunds: The deadline for filing a 2016 tax return to claim a refund, normally April 15, is extended to July 15. The return must be postmarked by July 15.
- Items filed as attachments to the forms due during the relief period including Schedule H (household employee taxes), Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations), and many others separately listed in the notice
Postponement of Government Acts
COVID-19 has made it difficult for the IRS, taxpayers, and CPA’s to access documents and other resources due to office closures, notice 2020-23 also gives the IRS additional time to perform certain actions. They will have an extra 30 days to perform if the last date for performance is on or after April 6, 2020, and before July 15, 2020. Affected taxpayers include those under audit, cases with the Independent Office of Appeals, and those who submit amended returns or payments related to a tax that the assessment period would expire on or after April 6, 2020, and before July 15, 2020.
Main Street Lending Program
The Federal Reserve is offering four-year loans to companies with up to 10,000 employees and revenues of less than $2.5 billion per year. The loans will also allow principal and interest payments to be deferred for a year. The minimum loan size for this program is $1 million. These loans will be issued through banks, who will develop their own application process.
The maximum loan size that is the lesser of $25 million or an amount that, when added to the Eligible Borrower’s existing outstanding and committed but undrawn debt, does not exceed four times the Eligible Borrower’s 2019 earnings before interest, taxes, depreciation, and amortization (“EBITDA”).
The Federal Reserve term sheet is available here: Main Street New Loan Facility
Have questions? Need more information? Schedule a free consultation today!