AS Of 5/21/20 Steven L. Moyer, CPA CGMA PFS CSEP Brent C. Thompson, - - PowerPoint PPT Presentation

AS Of 5/21/20

Steven L. Moyer, CPA CGMA PFS CSEP Brent C. Thompson, CPA CMA CGMA Canon Capital Management Group 484 Harleysville Pike Harleysville, PA 19438 215-723-4881 smoyer@canoncapital.com bthompson@canoncapital.com

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Steve has been with Canon Capital since 1999 and has been practicing in public accounting for over 30 years. He received his BS in Accounting/Business Management with a minor in Psychology from Eastern Mennonite University. He is a member of the AICPA, the PICPA, the National College Advocacy Group and the AICPA Tax, Personal Financial Planning and the Forensic and Valuation Services sections. Steve specializes in tax, estates and trusts, personal financial and college planning services, and business tax planning. He also has significant experience in church, non-profit, and private foundation tax areas. In addition to being a CPA he also holds the Personal Financial Specialist (PFS) designation, the Chartered Global Management Accountant (CGMA) and the Certified Specialist in Estate Planning (CSEP)

• designation. Steve and his wife reside in Souderton. Steve has

three children and enjoys traveling, playing sports, gardening, and bicycling.

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Brent joined Canon Capital in 1998 and is responsible for providing management advisory services, tax and general business planning, tax preparation, and financial statement preparation and review services for numerous businesses and their owners. In addition, he assists the firm directors with scheduling, staff development, and business development. He earned his Bachelor

• f Business Administration degree from Temple University.

In addition to holding his CPA designation he also holds the Certified Management Accountant (CMA) designation and a Chartered Global Management Accountant (CGMA) designation. Brent is a member of the AICPA and the Institute of CMA’s, and is a former instructor

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business development courses at Montgomery County Community College. He has also served on the Economic Restructuring Committee for the Souderton/Telford downtown revitalization efforts and the Stewardship Committee for Keystone Fellowship. He currently serves as the treasurer of the Indian Valley Chamber of Commerce. Brent resides in Souderton with his wife and three children. He enjoys boating, water-skiing, and working on home improvement projects.

FAQ #31, 46, 47 Over $2M loans to have additional “scrutiny” If you made a mistake on the borrowing

capacity……..

IRS Rev Proc issued to state that the expenses paid

with PPP funds are non-deductible. Therefore, in essence, forgiveness is taxable (expect to change)

Prepayment greater than 20% of unpaid balance

requires written notification with minimal three weeks notice

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Partnership clarification on guaranteed

payments

Self-employed individual loan amount and

forgiveness amounts

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Currently in 56

56 56 56-day “cover period” for proceeds to be used

After 56 days, apply to the lender for

forgiveness

• Application dated to expire on 10/31/20
• If you don’t apply, there is no forgiveness
• Lender will have 60 days to make a decision

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There’s A LOT of guidance to come out yet

• Goal for today is:

Understanding how your situations/actions affect the forgiveness calculation. Passing on what is new, or what questions were addressed with the forgiveness application release

Communication The goal is NOT just forgiveness

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Worst case scenario - any remaining amounts

will:

• Be termed out

6-month deferral (first payment due month 7) 1% interest rate 18-month term

Sole-Proprietors without other qual expenses

• Inherently will have partial forgiveness (2.5 vs 2)

NO PREPAY PENALTIES – however, written

notification is required to be furnished to the lender if prepaying over 20% of the balance

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Options for borrowers to calculate payroll costs using

an “alternative payroll covered period” that aligns with borrowers’ regular payroll periods

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

An employee who resigns, is terminated for cause, or

voluntarily accepts a reduction in hours will not count against your headcount

New safe-harbor tests for companies to be exempt

from the reduction of FTEs and salary reductions

A new simplified method for calculating FTEs

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Eligible payroll costs – “Costs Paid AND Costs

Incurred”

• Payroll – has the “alternative coverage period option”

“Payroll costs incurred but not paid during the borrower’s last pay period of the covered period are eligible for forgiveness if paid on or before the next regular payroll date”.

• Non-Payroll Costs – “Paid OR Incurred” “an eligible

nonpayroll costs must be paid during the Covered Period

• r incurred during the Covered Period and paid on or

before the next regular billing date, even if the billing date is after the Covered Period”. The term “or” seems to indicate that non-payroll expenses in arrears can be counted towards forgiveness

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Beginning 56 days from the date of proceeds: Payroll Costs

• US Citizens compensation, vacation, tips, commissions, severance, and

similar

• Employees capped at $100K annual (1,923/week)
• Families First PTO and FMLA DO NOT count
• Payments (net) employee health insurance
• Employer payments to employee retirement plans
• Employer state and local taxes assessed on compensation

Non-Payroll Costs

• Rent/Lease on real or personal property
• Utilities – electric, gas, water, transportation(?), phone, internet
• Interest on business debts
• Interest on business mortgages

Note – all cost “structures” had to be in place by 2/15. No “new”

loans, utilities, rent, etc.

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Logistics of interest accrual “Paid and/or Incurred”

• Retirement account contributions

What is “transportation” utility

• Gas for company auto – some guidance
• Trash – there’s been no guidance

“Mortgage” interest on personal property

• We believe interest on business loans secured by

assets qualify

Owners Health Insurance and Retirement

Contributions

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1) Determine the dollar amount eligible 2) Salary Reduction ($ calculation)* 3) FTE (% calculation)* 4) Apply the 75/25 ratio limitation to the

dollar amount eligible * Individual safe harbors exist

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Borrower to calculate the average number of hours paid

per week for each employee during the covered period (or alternative).

• 40 hours equals 1 FTE
• Each employee is capped at 1.0 FTE
• Round to the nearest tenth

Compare that count to one of two base periods of

borrower’s choice:

• February 15, 2019 to June 30, 2019, or
• January 1, 2020 to February 29, 2020

Note-covered period as a whole, not per week reduction of

forgiveness

Above ratio will set the forgiveness reduction before the

safe harbor

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Borrower is exempt from losing loan

forgiveness based on reduced FTE levels if both:

• the borrower reduced its FTE employee levels in the

period beginning 2/15/20 and ending 4/26/2020, AND

• The borrower, by no later than 6/30/20 restored

it’s FTE employee level to the FTE employee level that existed during the borrower’s pay period that included 2/15/20.

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New Simplified Method:

• Same calculations
• Employees that work 40 or more hours per week

are counted as 1 FTE.

• All others working less than 40 hours per week are

counted as .5 FTE

• This may not be beneficial to borrowers who have a

number of employees in the 20-40 hour range, but may be very beneficial to borrowers who have a number of employees in the 1-19 hour range

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Not Penalized for the following:

• Reductions related to any positions for which the

borrower made a good-faith, written offer to rehire an employee during the covered period (or alternative) that was rejected by the employee

• Reductions related to any employees who during

the covered period (or alternative) were:

Fired for cause Voluntarily resigned, or Voluntarily requested and received a reduction of their hours

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Calculate FTEs for the following:

• Period of 2/15/19 to 6/30/19
• Period of 1/1/20 to 2/29/20
• Period of 2/15/20 to 4/26/20
• The pay that includes 2/15/20
• Soon:

Your 56 day payroll covered period The pay that includes 6/30/20

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A reduction in forgiveness amount is required if

the reduction in wages over the payroll covered period is in excess of 25% of the total salary or wages of the employee during the period from January 1, 2020 through March 31, 2020 (for employees who did not did not did not did not have annualized wages of

• ver $100K for any single pay in 2019).

Note - the forgiveness application has two

different tables for wage reporting. One is for employees over $100K, the other is for employees under. The under table does not have a reduction column. Your free to reduce these employee salaries any amount

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The reduction is based on the dollar excess

the annualized reduced salary exceeds the allowable 75%

That annualized difference is then de-

annualized to 8 weeks.

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Borrower is exempt from losing loan

forgiveness based on reduced pay levels if both:

• the borrower reduced its employee pay levels in the

period beginning 2/15/20 and ending 4/26/2020, AND

• The borrower, by no later than 6/30/20 restored

it’s employee pay level to the employee pay level that existed during the borrower’s pay period that included 2/15/20.

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Identify any employees who had annualized

rate of pay of more than $100K during any single pay period during 2019

For employees who did not have an

annualized pay over $100K, calculate their average annual salary for the period of January 1, 2020 through March 31, 2020

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Calculate Annualized Pay for the following:

• Period including 2/15/20
• Period of 1/1/20 to 2/29/20
• Period of 2/15/20 to 4/26/20
• The pay that includes 6/30/20
• Soon:

Your 56 day payroll covered period The pay that includes 6/30/20

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Note that salary reduction measurement is by

period and not by individual pay

With the safe-harbors, there has to be some

anti-abuse rules to follow

Overall, getting the full loan forgiven will be

challenging.

• You borrowed 100K/12*2 = 16,667
• Allowing as a forgiveness $100K/52*8 = 15,385

As the application is currently drafted, the

25% non-payroll costs are subject to the FTE reduction quotient

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Banks

• Pg 24 of Interim Final “Can lenders rely on borrower

documentation for loan forgiveness?”

A – Yes. The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible

• costs. The Administrator will hold harmless any lender

that relies on such borrower documents and attestation from a borrower. You You You You are going to have to give an accounting and certify under civil/criminal penalties

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Payroll reports Tax forms Payment receipts, cancelled checks, bank

statements

Documents showing calculation of FTEs

during period(s)

Mortgage interest statements, schedules, etc. Rent or lease payments, or lease agreements Utility payment invoices with canceled checks

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Documentation supporting

• Worksheet 1
• Worksheet 2

Documentation regarding refused job offers,

firings, resignations, request for reduction in work schedule

Document your uncertainty that necessitated

the loan

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Banks may require more documentation Documents required to be retained for 6

years

An audit would be through SBA – not IRS

• Civil penalties and jail time
• Hire a litigation attorney at the beginning

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Pay increases

• Bonuses, unemployment, hazard

FTE’s capped at 40 hours per week, per employee

• Overtime hours hurts the FTE calculation

“Over document” the non-payroll expenses if the

75/25 test gets eliminated

Turn in application for forgiveness early or later

• If you’re satisfied with results – turn in early
• If you want to wait, that’s OK too. Beneficial changes

may be on the way

Paid OR incurred nature of non-payroll costs Payroll tax deferral available until forgiveness

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HEROES Act - Key elements in House proposed

legislation (expect changes before adoption)

• Extends the 8-week covered period to 24 weeks
• Extends the covered period from June 30 to December 31
• Offers safe-harbor to borrowers who cannot rehire during the

covered period

• Clarifies that expenses paid with PPP funds would also be tax

deductible

• Removes the requirement that not more than 25% of loan

forgiveness amount can be for non-payroll costs

• Carves out funds for small businesses with 10 or fewer

employers

• Carves out funds solely for use by non-profits
• Mandates that returned amounts be redistributed to

businesses with 10 or fewer employees

• Extends maturity of PPP loans to 5 years
• Enhances the employer retention credit

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Trump/Mnuchin

• 8 Weeks/June 30th
• 75/25 test
• Enhancing the employee retention credit

($22,500/employee)

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Business Provisions

• Employee retention credit
• Delay of Payment of employer payroll taxes
• Repeal of limitation of net operating losses,

including carrybacks

• Bonus depreciation on qualified improvement

property (technical correction for tax cuts and jobs act)

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Individual Provisions

• Stimulus payments
• No 10% additional tax for coronavirus-related

retirement plan distributions

• RMD requirement waived for 2020
• Modification of limitations on charitable

contributions and increase limits on contributions

• f food inventory

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Send a quick review comment to

info@canoncapital.com

• More of these will be necessary as further guidance

is released and on the application itself

Send questions to Steve or Brent – We’ll try

and do our best to reply

Thank you to the Director group at Canon for

allowing us to “get out there” and offer our assistance to the community and our clients

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