Gassman, Crotty & Denicolo, P.A.



March 1st IRS Notice Provides Essential Guidance And Safe Ha...Sat, 3/6 10:03AM ? 31:31SUMMARY KEYWORDSppp, brandon, loan, gross receipts, kevin, erc, business, guidance, credit, wages, retention, sba, deemed, rule, application, apply, receipts, qualify, irs, quarterSPEAKERSAlan Gassman, Brandon Ketron, Kevin CameronAlan Gassman 00:04Hello, thanks for joining us for this March 1 IRS notice provides essential guidance and safe harbors for the employee retention credit. I am not Alan Gassman. He's on his way here. He's forgot to put gas in this car. We have Brandon Catrin, who is a CPA, JD LLM very smart guy. And Kevin Cameron, who is even smarter than Brandon. In fact, we tested them and Kevin is 12.2% smarter than Brandon, Brandon has a slightly better memory. So this is a free webinar. In fact, we should probably pay you to attend. And if I could stick my neck out, I would say that we have a lot of good information for you. You have our email addresses below. You can email Kevin with any difficult question or any long question. And email Alan Gassman with any easy question, especially when you put at the bottom and I'm willing to pay you to answer this question. Brandon, ah, not so much. He's got a lot of work to do. So anyway, we're gonna look at the questions, then you can post questions during the talk. And oh, here he is. Okay. All right. So thanks for joining us. Don't forget, Brandon and I are updating our book, the employee retention credit guide, second only to the bankruptcy book that's selling pretty well. You will get a free white paper on the employee retention credit, which will give you a lot of good reading. But we're gonna put all the 102 pages of IRS guidance directly into this book by next Tuesday or Wednesday. In fact, grace the law clerk is working on it right now. And then Brandon and I are going to be talking about an ERC update Wednesday for the Lindberg system. And Brandon, if I'm not incorrect, we're also going to be talking about the PPP update as well.02:03Okay, ERC.Alan Gassman 02:06Okay, beautiful. And then at 10 o'clock eastern standard time, a great event for all Americans. Kevin is going to talk to you about the PPP spreadsheet, and he's going to be updating our knowledge based upon what was released last week. So if you don't get enough PPP knowledge from this presentation here now, make sure that you tune in with Kevin, Kevin, any words to the wise for this,Kevin Cameron 02:35covering some of the same things that we're covering here in this webinar, Alan, but it ties in a little bit more to the PPP at 10 o'clock,Alan Gassman 02:44and probably more for CPAs than business owners or at leastKevin Cameron 02:47both? Both. These are regular weekly tune up webinar.Alan Gassman 02:55Beautiful and do you have a talking puppet?02:58No, I do not.Alan Gassman 02:59Okay, well, not everybody is going to attend them. Morning to attendees, we are doing our level best. I know a lot of you are new to this, Brandon and I are tax and estate planning lawyers who kind of got interested in all this. Kevin is a very experienced and weathered CPA. But we are going to definitely make some mistakes here because when you read 102 pages of IRS examples, and dozens and dozens of pages of new PPP rules, we don't necessarily interpret these the same way that the government may interpret them. Please see a professional if you can't afford a professional. Please note that the SP a score, SC o r e organization. And in addition, if you're in New York Pace University have free clinics with very well qualified people to help you. Anyone who does his own legal work has a fool for a client and maybe anyone who does his own accounting work as a fool for an accountant. So be careful, please, Brandon, do you want to give us a brief overview for the viewers who may be not as conversant as everyone is on what the wage what the retention credit is and what the PPP program is? Yeah,Brandon Ketron 04:11so there's a bunch of programs here under the cares act, we developed this slide to just give some guidance over what all those programs are, but I'll focus on PvP and ERC just to give a little bit background here. So the PPP loan is a forgivable loan, you get this loan based upon two and a half times your average monthly payroll cost, you could receive a first loan and there's also now the availability for a second PPP loan. You can only qualify for the second PPP loan if you've used all the first one and you have a 25% or more reduction in your gross receipts comparing previous quarters up to the same quarter of 2024. To get your first loan the loan had to be necessary to support the ongoing operations of the business. We thought the same was going to apply for PPP round two, they've changed those rules slightly and now say that if you have that 25 percent reduction, you're essentially deemed to meet the necessity requirement. We'll go through that in some more detail. But to the extent that you spend this loan on the right expenses, payroll, interest, rent, utilities, the loan is forgiven. So we'll go through how that works. And provide some more details on what has changed in relation to that. The retention credit, this is a credit on wages that you pay to your employees if you meet certain requirements. The first is you had a 50% reduction in revenue in 2020. That goes down to 20% reduction in revenue in 2021. Or you can also qualify if you have a partial or full suspension of your business operations. And we'll go through some examples of what that means and how the SBA and IRS have defined that for purposes other retention credit. But if you meet one of those two thresholds, then you can get a credit up to $5,000 in total, and 2020, or up to $7,000 per employee in total, per quarter in 2021. So there's significant money available for both of these programs. The trick is they interact with each other. So if you include wages on for PPP forgiveness, you can also claim the retention credit on those wages. So we have to do some accounting work, figure out how to best allocate between the two. And we'll go through some examples as to how those two interact with each other. So I'll enter Kevin, anything to add there as the initial background for both programs.Alan Gassman 06:31The only thing I'm going to add is I'm going to have a transcript typed up of what you just said. And I'm going to have sent to all the attendees. And if you're not viewing this live, just email us, and we'll send you that transcript. So because that was a really good review, but I know a lot of people have trouble covering it. So Brandon, when I looked to see whether I had a 25% reduction for PPP purposes. If I got money for the employee tax retention credit, or I got money from PPP, does that count as receipts? Or I?Brandon Ketron 07:08Yeah, we know for sure that the PPP loan forgiveness is not considered to be a receipt at all, we don't think the retention credits are going to be considered a receipt. So I think we can disregard those we're looking at generally anything and everything else though, if you have provided relief funds, that's going to count any other type of support from a you know, state or local government is likely going to count only this loan forgiveness and this retention credit can be excluded from those receipts.Alan Gassman 07:38Okay, so Kevin, here's a question. This person would like to buy a lamination machine that costs $195, they would laminate this chart, and then they would take it in the hot tub and drink a glass of wine to understand it with that lamination machine be tax deductible? And would it have to be depreciated over time?Kevin Cameron 07:59It would be tax deductible if it's purchased for business and it would not need to be depreciated because it's under the capitalization rules for depreciation you canAlan Gassman 08:11if the doctor recommended the glass of wine to calm down, would that be tax deductible?Kevin Cameron 08:20Probably not. If you recommended it now, if he prescribed it, it might but then we might have to check into that doctor's license a little bit.Alan Gassman 08:28If it was medical marijuana, I don't think it would be deductible.Kevin Cameron 08:31It's not deductible right now.Alan Gassman 08:33Not in the United States, maybe in Canada. Okay, it is time for the chart of the day. This is a brand new chart, I just thought it up at about 8:10am. Debbie typed it up, Brandon fixed it. Brandon, you want to tell us what this chart says?Brandon Ketron 08:48Yes, it just is just talking about the revenue reduction requirements, what quarters, we look at how this works. So for PPP one, you don't have to worry about any reduction or of your revenue, it's just simply whether the loan was necessary to support the ongoing operations of the business is the requirement for your first draw. Now the second draw, you had to have a 25% reduction in gross receipts. And what we do is we compare a quarter of 2022, that same corresponding quarter in 2019. So second, quarter, 20 22nd, quarter, 2019, third, to third, fourth to fourth, do you had a 25% reduction, then you can qualify. Now, if you weren't in business for say the second quarter of 2019, there's an Alternative Testing periods that do apply. So you would compare your third quarter of PSR, your second quarter 2020 to like the third quarter of 2019 if that's when you started operations. Um, so there are some alternatives if you weren't in business in any of these quarters. But there's guidance on the SP website as to how that would work. And it's also on the application as well. For the retention credit that generally works the same way you're comparing corresponding quarters to each other. So 2020 q2 to q2 of 2019 50% reduction. But remember, this isn't the only way you can qualify for the PRC, you can also qualify if you had a suspension of your business. common example of that restaurant industries, they were shut down, couldn't provide services had limited indoor seating, that's considered to be a suspension of the business, they can qualify for the retention credit, regardless of their gross receipts. Now, for 2021 GRC. It's only a 20% reduction, and we're comparing quarters in 2021, to the corresponding quarter in 2019. So we skip over 2020 and go all the way back to 2019. For qualifying for 2021. The one exception that's a new rule in 2021, is we can compare the prior quarter to determine qualification in the current quarter. So if we're in quarter one of 2021, we can look back at quarter four of 2020. Compare that to the same corresponding quarter in 2019. So quarter for 2019. And also qualify that way for in quarter two of 2021. We can look back at quarter one of 2021 compared to that same quarter in 2019. To determine qualification,Alan Gassman 11:15okay, we'll share a transcript of this explanation as well. And the definition of gross receipts is different from between PPP and ERC. So we're going to prepare a comparison chart for that. Also, and, as Brandon said, and I'll just mention it here, because we're going to mention it at least three times for PPP one, to get that first loan, you had to verify that it was necessary for the ongoing operation of the business, if you had a million dollars in your checking account. And your expenses were only 10,000 a month, you couldn't satisfy that necessity requirement. There are people out there and businesses out there who now qualify for PPP one for the very first time, especially certain non for profit organizations, and Brandon will mention the others. So there's going to be a lot of PPP one loans now being applied for and received by people who are businesses. Now for PPP to the necessity requirement still applies. But there's something in the new regulations that just came out, which says that if you had that 25% dip in revenues for one of these calendar quarters, you are deemed de m ed to have had the necessity requirement satisfied. So you could have a billion dollars in your bank account only $10,000 a month of expenses, and you're making money now and you will continue to make money because of what you've done with your business. But if you had that 25% reduction in revenue, maybe because you close down part of the business that was losing money anyway, it is deemed to be necessary. So Brandon, and Kevin, how comfortable Do you feel that that statement deemed to be necessary is enough to allow these successful businesses that that actually don't need the money to go ahead and get a p p p to loan?Kevin Cameron 13:25Well, I think one of the things to remember here is that the SBA, we've said it a number of times they can give it and they can take it away. And so we might see some future guidance that backpedals on that a little bit. So I think if you're a PPP to qualified borrower, you still need to look at your overall finances and see if you need the money for the operations of the business just because you qualify. Maybe you shouldn't apply for it if you're in really good shape financially.Alan Gassman 13:53I mean, I think you apply for it, and you get the money. And then you write the SBA letter certified mail saying I received the money, but there's an issue here, I'm willing to send it back, please give me guidance, then hopefully you don't hear back. But you do get the green receipt card back. And maybe the most important piece of paper you ever had besides your marriage license, or perhaps your divorce decree, depending on how you look at it. All right. So Brandon, you've read IRS notice 2021 dash 20 it's many many pages. And it was published not November 3 2020. By the way here on page 11. It was published March 3 2021. What does it tell us?Brandon Ketron 14:39Yeah, so the the main thing is this interaction between how the ERC wages and your PPP forgiveness works. So the question was, how are we allocating between ERC and PPP? What is the IRS going to require as far as substantiation to show you know, how are we allocating these wages between Because we cannot double count. And the good news is that this is generally favorable taxpayer friendly that in that they've said, if you include wages on your PvP application, you're deemed to have made an election out of claiming those wages for the retention credit, but only the minimum amount of wages that you need to receive loan forgiveness are deemed to be opted out. So a lot of borrowers submitted their PPP application with excess wages included on the application, because they, you know, might have had a loan of 200,000, paid 300,000 of wages during the applicable period just included all those 300,000 of wages on the application just to be safe. Well, the concern was, since I included them on the application that they wouldn't be eligible for the retention credit. But the services now said that we're only going to count the 200,000 that you needed for loan forgiveness, that excess 100 can pass through be eligible for the retention credit. So that was good news. If you also have other non payroll expenses, you can reduce that and only include the maximum amount of the minimum amount of PPP wages to qualify for forgiveness. So that was a good rule. The bad news is that there's really no way to go and amend an application. So if you had, for example, just all wages reported on the application, you had some non payroll costs that you just didn't include, because it was easier to just include wages, and the documents that you had to provide were a lot easier and we didn't think we could qualify for the retention credit in any way. Now, we know we can. So we probably would have included those non payroll costs on the application to reduce the wages and allow for more qualification for the retention credit. Unfortunately, there was no guidance given on how to amend those applications. And, Kevin, I don't know if you want to provide any additional insight there as as to how that would work. And what you've been advising your borrowers in that situation.Kevin Cameron 16:59Yeah, Brandon, if the borrower already submitted their forgiveness application, and they can't retract it or amend it, or their forgiveness has already been approved. And they only use payroll, they're getting kind of a short end of the stick here. So I cover that a little bit my 10 o'clock webinar, and it's something that we're going to have to see if we get some further guidance from the SBA on, I think the IRS took this position because it was an easy way to identify which wages were used for PPP forgiveness, but it might not be the fairway. So we're gonna have to see if the SBA is going to be willing to change the rules a little bit for those people who were smart and prudent and proactive and got their applications in quickly for forgiveness, because it could come back to haunt them now. Yep.Brandon Ketron 17:47So they the number two here is, in order for a business to be considered partially suspended, you have to have a portion of the business that accounts for at least 10% of the total receipts of the business. And we look back at 2019 to determine this. So if you had to say you make $100,000 of total receipts in the year, you have a portion of the business that accounts for 50% of your total gross receipts, that business was affected by a shutdown order. So then that total business is considered to be partially suspended and thus eligible for the retention credit. Another example 100,000, total gross receipts, one portion of the business accounts for just 5% of $5,000 of the total revenue of the business, if that portion was completely shut down, that's not going to rise to the level of a partial suspension for purposes of qualification. So there's this 10% threshold barrier that applies. I think it makes sense supplied in a good way.18:46Kevin, anyBrandon Ketron 18:47additional thoughts on this part?Kevin Cameron 18:49Brandon, I agree with you here. You know, the IRS originally stated that we had to have a nominal reduction in business if we were subject to a partial or full shutdown order. And nobody defined what nominal was. So now they've done us a favor and defined it at 10% of gross receipts. Now, if you don't have multiple business operations, if you're just one business, say you're a restaurant, and you were subject to a partial shutdown, and your business revenue went down 32%, not more than 50% or 50% or more, you wouldn't qualify for the ERC. But now you can because you're following the partial or full shutdown in order. And you know that 32% is greater than 10%. So you've met that nominal threshold. So I think this helps us a lot.Brandon Ketron 19:39The other couple items here that I just mentioned. Whoops, this list of factors to consider one of the things that you if even if you are affected by a shutdown order, you have to consider whether you can continue comparable operations. So they gave us some factors to consider in making that determination. So for example, say you're a law firm That was required to close their doors and then some some states, but all your employees could tell you work from home and do just as well working from home as they could in the office, that's not going to be considered a partial suspension for purposes of the retention credit. Valley, if on the flip to the next slide, we can go through the next two items, there's a lot of detailed guidance on the difference between large employers and small employers and what limitations apply there. If you're considered to be a large employer more than 100 employees and 2020, you can only get this credit, if you were paying wages to employees not providing any services. If you are less than that, then it doesn't matter what the employer was doing, you can get the credit. So we have another slide on that, that we we can go through and show some examples. There's also guidance on how we're retroactively claiming this credit for 2020. And the the guidance tells us in most cases, it's filing an amended form 941 for the applicable quarter in which the wages were paid. So you go back and amend those 940 ones to qualify. Alright, so now for PvP guidance. What did we learn from this? Well, there was new rules for independent contractors and also the updated the frequently asked questions. So independent contractors, Schedule C, filers can now get the loan amount based upon their gross income rather than net income. So if you have net income of less than $100,000, take a look at your schedule, see, see if you could use gross income and then apply for the loan using the gross amount. The bad part about this was this only applies for loans issued after the date of the guidance, we can't go back and amend applications in situations where gross income would allow for a larger loan. Unfortunately, they did not apply this rule retroactively. The necessity requirement, as we mentioned, is deemed to be satisfied if you met that 25% reduction in gross receipts. The downside is they have a new rule here for independent contractors and schedule C filers that say if you elect to get this loan based upon grocery seats, in your grocery seats exceed $150,000, that this safe harbor does not apply to you. So you have to independently satisfy the necessity clause for receiving this loan. So bad luck for independent contractors again, here, this, opting out of the Safe Harbor for them, we're not really sure why they did this. But it does apply here. And they would have to independently satisfy the necessity requirement. So what you should be looking at here is if you have net income of over $100,000, don't apply using gross apply using the net, because that's going to be your maximum amount anyway. And that way your safe harbor would still apply. If you decided to use gross, then you could run into this issue with having to independently satisfy the necessity requirement. The guidance also told us that we're not aggregating loans for purposes of this to $2 million necessity requirement. So if your first loan was under 2 million, you're you're under the Safe Harbor threshold, even if both of your loans can cut mine together would exceed the 2 million. So that was another nice rule there.Alan Gassman 23:27So Brandon, let me let me slow down because I think a lot of people listening here are in this boat. So if you're an independent contractor or a sole proprietor, you file a Schedule C, you don't pay wages to anybody, you just take home the income that you that you earn. For 2020, the initial PPP loan program, you can only borrow 20.833% of your net income, that's the net income line 31. That's revenues minus expenses means net income. Now for some of you, that was a very, very small amount, you might have had 80,000 of revenues, and 75,000 of expenses and only 5000 of net income and you didn't even bother to get a PPP loan because for 5000 bucks, it wasn't worth all the paperwork. Well now if you did not get a PPP loan for last year. In that example, you can go ahead and apply for it now and it's going to be based on 80,000 you're going to get 20.833% of 80,000 which is a little bit more than $64,000. And this can be based upon your 2019 Schedule C which is an attachment to your form 1040 tax return. Now for the 2021 PPP loan for an independent contractor. You will have to have some satisfied the 25% reduction tasks in one of these quarters, your revenues went down. And I'm sure that happened for almost everybody in America in the second quarter of 2020. So now you can use either your 2019 or 2020. Form schedule, see, whichever one has the better number for you. And you can base it on gross receipts. So if you had 85,000 of gross receipts in 2021, even though you had one bad quarter, you made up for it by working extra hard, the next two quarters, your loan is going to be again about $64,000. So we are going to give a transcript of this but I think it's really important and and i think either Brandon and I are the three of us are going to do a 30 minute one. Pretty soon, maybe next Saturday, just for independent contractors and sole proprietors. But here's the rip off for you if you're an independent contractor, a sole proprietor if my law firm, qualified for a $1,900,000 PPP loan, and we don't really need it, but we qualified, then we get the million nine, and it's deemed to be necessary. If you had receipts of over 150,000, and you used gross receipts to get your $20,833 loan, then it is not considered to be necessary, highly discriminatory, very the most discriminatory thing that we've seen since the early cares act interpretations. So I expect that it's going to change. But that's what it is right now. And then Brandon is always What did I say wrong? To know, IBrandon Ketron 26:53think you got that one. Right. But what do you think? Actually, the one thing I did notice you said $64,000 loan if you had 80,000 in gross receipts would actually be around 16,000? Because 20% Oh, I'm sorry. We were close.Alan Gassman 27:08It's 20.833%. You're right, I was going with 80% instead, that one, I don't think they'll I don't think they'll change that one. Okay, so we have one minute left, which means we're going to run late. Those of you who are lawyers know that one minute is actually two tenths of a billable hour. But what do you want to close with Brandon. Or let me also mention that Brandon, and I posted to Forbes, my Forbes blog, every bit of information that we've talked about today, except for the puppets in the hot tubs. So you can read those Forbes articles, and I think he get four or five free Forbes articles per month before they try to make you subscribe. And of course, you can use your mother in law's computer and your son's computer and your daughter's computer. And the more people you know, the more Forbes blog articles you can read for free. Anything else you want to mention, Brandon are are justBrandon Ketron 28:09briefly mentioned that there there is a new application for those Schedule C filers that, you know helps with this calculation of the gross receipts and determining what your loan amount would be based upon it. There's a lot of slides here that go through all the new changes a lot of the examples given in the the guidance, we put those on the deck as to how the coordination works between PDP and ERC, how you claim the credit, how this 10% threshold works. So the slides are very good. Just read through those. If you have any questions, feel free to reach out to us. And we'll beAlan Gassman 28:43happy to reach out to Kevin, his email addresses here. At the bottom, we were deterred. We determined that if Kevin got five cents for every app, every question is answered. He could buy a brand new house.Kevin Cameron 28:57And it'd be a tiny house. But yes, Alan, I do want to add one last thing on the self employed individuals because I think it's a bit of maybe bad news. If you've already gotten your PPP round to loan, it doesn't appear that you're going to be allowed to go back and amend that loan application to get a higher loan. That's what the banks are telling us. That's what the SBA is saying right now. So that's that's one bit of bad news, because when round two came out, a lot of sole proprietors self employed, people went and got their second loan pretty quickly. And now that again, that's not it's unfortunate that that happens. So we're going to see if maybe SBA might modify that but as of right now, I don't believe they are.Alan Gassman 29:39Okay, and then Kevin, there was one last question can you deduct the hot tub?Kevin Cameron 29:45Can you deduct the hot tub, believe it or not, there are some guidance there with respect to deducting a pool or expenses related to a pool or a hot tub that are medically related required and prescribed. So check with your tax advisor on on that issue.Alan Gassman 30:06You know, I guess if you marry the pool Boy, that's part of the whole business.Kevin Cameron 30:12I see I get your employee. Yeah,Alan Gassman 30:15yeah. Yeah. All right. Well, thanks again. We hope that you'll use this information to help others. We are posting this to YouTube. We're going to be sending you the transcript. We cannot thank you enough for all of the support that we've had from so many viewers, the emails, the cookies, the cakes, the gold bullion, whatever it's been, it's been great. And we'll continue to report this as best we can. You'll be with Kevin at 10 o'clock. And Kevin has pledged to do the PPP 10am worksheet for the next 10 years. So that's 120 of these that you'll be able to see. Thanks again.Kevin Cameron 30:59Go ahead. Now, as we say at the rate we're going there might be enough content for that many.Alan Gassman 31:05Exactly. And I hope everybody is getting vaccinated, staying safe and having a great weekend. Thank you. ................
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