New AICPA Tool Automates PPP Loan Forgiveness Process

Source: Journal of Accountancy

A new, free tool developed by the AICPA and fintech lender Biz2Credit is designed to help borrowers and their CPA advisers complete the forgiveness application for Paycheck Protection Program (PPP) loans.

Available at PPPForgivenessTool.com, the dynamic platform automates the forgiveness process for small business owners who received funds from the PPP. The tool incorporates the PPP forgiveness calculator developed by the AICPA and is available to any business approved for a PPP loan, regardless of the lender it worked with to receive funding.

Borrowers or their CPA advisers can use the tool to fill out the forgiveness application. The tool will produce all government-required forms automatically. The PPP applicants will be able to electronically sign the SBA Form 3508, PPP Loan Forgiveness Calculation Form, or Form 3508EZ, and the required source documents will be saved into a downloadable file that can be provided to PPP lenders.

The AICPA estimates that the tool will save hours of manual work for any applicant going through the PPP loan forgiveness process. Final Treasury and U.S. Small Business Administration (SBA) FAQs on PPP forgiveness are expected to be released soon, and the PPP loan forgiveness tool will be updated to reflect any new changes. Based on this, the AICPA recommends that borrowers and CPA firms wait for the final guidance before generating the final signed Form 3508.

More information on the tool is available at PPPForgivenessTool.com. In addition, videos are available providing a brief overview of the tool for borrowers and how CPA firms can use the platform.

The PPP in brief

Congress created the PPP as part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund forgivable loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.

The loans are available to small businesses that were in operation on Feb. 15 with 500 or fewer employees, including not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Businesses with more than 500 employees in certain industries also can apply for loans.

Congress designed the loans to support organizations facing economic hardships created by the coronavirus pandemic and assist them in continuing to pay employee salaries. PPP loan recipients can have their loans forgiven in full if the funds were used for eligible expenses and other criteria are met. The amount of the loan forgiveness may be reduced based on the percentage of eligible costs attributed to nonpayroll costs, any decrease in employee headcount, and decreases in salaries or wages per employee.

We will continue to send updates on this topic. At Zhong & Sanchez, we provide One-Stop-Shop Tax, Finance, Accounting and HR services for Startups and Entrepreneurs. We do it all, so you can stay focused on your business. Our experience in tax and accounting will free you from back office work; our extensive knowledge with start-ups will help you grow in the most efficient way. Located in the Silicon Valley, you can reach us at 510-606-6971 or schedule your first consultation today at https://calendly.com/zhongsanchez

During An IRS Audit, What Do The Auditors Look For?

There’s nothing more stressful than getting that audit letter in your mailbox. IRS audit is time-consuming and could be nerve-wrecking as well. Over my career, I’ve taken multiple business and individual clients through IRS audits with no adjustments made to books or tax returns. I’d like to share a few pointers from my own experience:

I got audited, but why me?

Almost all IRS agents told me the same thing: IRS has a complex algorithm that compares your tax return data with the “curve” or “pattern” they have in their system (information gathered from “big data”) and checks for reasonableness. However, I have noticed that you are more likely to get audited if you check one or more boxes from below:

• Choppy trend: Hitting a great year, followed by a terrible one, and then hitting it out of the ballpark again - This won’t put you on the board 100% but certainly raises a red flag. Presenting a healthy and stable trend is generally recommended, unless there is genuinely an extraordinary event, for example, natural disasters, pandemics like COVID-19, etc.

• Big top line but running a loss: Sounds suspicious already, right? Be prepared to have reasonable explanations and documentations in line to pass this one.

• Making too much: Net income over $1mm is typically a good indicator that you’re “making too much money”. Simply put, IRS hopes there’s something in it for them to spend the time and resources on an audit. It’s just more likely for them to get something out of it if they know you have the $$$.

What do auditors look for?

• Process walkthrough - IRS agents ask a lot of questions, which can be intimidating. What they’re trying to do here is to understand your business process - how do you get new customers? How does a lead become cash in your bank? Based on what you said, is it possible for you to miss or under-report your income? These are all important assessments being made in this part of the audit.

• Bank activities - Does your income match all the deposits? Did all the activities foot? Was there commingling of funds between business and personal? I always advise my clients - if you don’t want IRS to open additional audits based on results from one initial audit, keep your business and personal expenses separate, and always keep a clean paper trail.

• Major spendings - Be prepared to present documentation for major spendings and provide comments. My clients always ask me: if I don’t have the receipts, does it mean IRS won’t let me take the deduction whatsoever? The answer is, it depends. For example, if you didn’t have the receipts for $30 charged by Uber, but you have documented on your credit card statement, that this is the trip when you went to LA for a conference, accompanied with conference related plane tickets and lodging details, there’s a good chance the IRS will allow it. However, you don’t want to push the rules - we all know that Nintendo you bought serves no purpose in your jewelry crafting business.

• Contractor payments - Definitely a big area. IRS agents typically ask for agreements with specific service terms, work reports and related documentation to help determine the legitimacy and compliance of the contractor payments. Were W9 and/or W8-BEN collected? Were Forms 1099 filed?

• Sample tests - If your business is on the larger scale, instead of going through all transactions, it is not uncommon for the IRS agent to sample a few transactions deemed significant or representative to form an opinion on overall financial integrity. For example, they may ask you to provide PO records from key customers, POD (proof of delivery) if you sell goods, etc.

When in need, get in touch with us to consult on your situation. At Zhong & Sanchez, we provide One-Stop-Shop Tax, Finance, Accounting and HR services for Startups and Entrepreneurs. We do it all, so you can stay focused on your business. Our experience in tax and accounting will free you from back office work; our extensive knowledge with start-ups will help you grow in the most efficient way. Located in the Silicon Valley, you can reach us at 510-606-6971 or schedule your first consultation today at https://calendly.com/zhongsanchez

PPP Loan - How do you apply for forgiveness?

Source: https://www.sba.gov/

The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

You got your loan. Now the question becomes; how do I apply for forgiveness?

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 60% of the forgiven amount must have been used for payroll).

• PPP loans have an interest rate of 1%.

• Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.

• Loan payments will be deferred for six months.

• No collateral or personal guarantees are required.

• Neither the government nor lenders will charge small businesses any fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

    •    Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
    •    Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan
    •    Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
    •    Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
    •    Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined

When in doubt, consult a CPA to get opinion on your situation. At Zhong & Sanchez, we provide One-Stop-Shop Tax, Finance, Accounting and HR services for Startups and Entrepreneurs. We do it all, so you can stay focused on your business. Our experience in tax and accounting will free you from back office work; our extensive knowledge with start-ups will help you grow in the most efficient way. Located in the Silicon Valley, you can reach us at 510-606-6971 or schedule your first consultation today at https://calendly.com/zhongsanchez