Tag Archives: Paycheck Protection Program

IRS Denies Tax Deductions For Wages, Rent Paid With Forgivable PPP Loans

The Paycheck Protection Program offers an alluring loan of up to $10M tax free. If you comply, you don’t even have to pay it back. What’s more, there is no forgiveness of debt income when your loan is forgiven, something that is standard fare if you are relieved of paying back debt. However, IRS Notice 2020-32 confirms you can’t claim tax deductions, even for the wages, rent, etc. that are normally fully deductible. The CARES Act provisions for small business include the Paycheck Protection Program, which calls for up to $10 million in forgivable loans to cover employee payroll, and immediate tax credits that are designed to do the same thing. After the IRS notice, it now appears that Congress could reverse IRS denial of tax deductions.

Since the PPP came out, it has been roiled in controversy, with the SBA and banks offering a less than seamless roll out, and a true run on the bank that depleted all the money very fast. Congress eventually came to the rescue by authorizing more money, but that seems likely not to last very long either. And the FAQs and other pieces of guidance have been fast and furious. So has speculation about various points. There have been debates about the tax deduction point, with some people saying you could still deduct the wages, since the CARES Act did not seem to say otherwise. But under traditional tax principles, it seemed too good to be true that you could get the free money, not pay discharge of debt income, and still deduct the payments of wages and rent made with the free money. The IRS notice confirms that.

The Paycheck Protection Program allows loans of up to $10 million at 1% interest to employers with fewer than 500 workers to cover two months of payroll and overhead. If you keep your workers and do not cut their wages, the government will forgive most or all of the loan and even repay the bank that actually made you the loan. The loan amounts will be forgiven as long as: (1) The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and (2) Employee and compensation levels are maintained. Payroll costs are capped at $100,000 for each employee. SBA lenders have details, though there has been controversy and hiccups in rolling out the program.

Your loan forgiveness will be reduced if you decrease your full-time employee headcount. Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

You also have to specifically request loan forgiveness. You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

There are other no-double dip rules too. You can’t get both a small business loan under the PPP and alsoclaim CARES Act tax credits to keep employees. Which is better? It’s one of those annoying ‘it depends,’ so run the numbers. Finally, it now appears that Congress could reverse IRS denial of tax deductions.

Source: by Robert W. Wood | Forbes

Fed Eases Wells Fargo “Growth Restrictions” So The Bank Can Participate In .gov Small Business Bailout Programs

Following Wells Fargo’s complaint that it was unable to fully participate in the SBA’s Paycheck Protection Program, capping its small business bailout exposure to at most $10 billion, due to the Fed unprecedented 2018 enforcement action and restrictions on Wells Fargo’s balance sheet as punishment for the bank’s opening of millions of fake accounts  which cost former CEO John Stumpf his job, it was only a matter of time before the Fed relented and eased the bank’s restrictions as the NYT reported two days ago.

And indeed, this happened moments ago when the Fed announced that “due to the extraordinary disruptions from the coronavirus, that it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses.”

Due to the extraordinary disruptions from the coronavirus, the Federal Reserve Board on Wednesday announced that it will temporarily and narrowly modify the growth restriction on Wells Fargo so that it can provide additional support to small businesses. The change will only allow the firm to make additional small business loans as part of the Paycheck Protection Program, or PPP, and the Federal Reserve’s forthcoming Main Street Lending Program.

However, in a curious twist, the Board said it would require profits and benefits from Well’s participation in the PPP and the Main Street Lending Program “to be transferred to the U.S. Treasury or to non-profit organizations approved by the Federal Reserve that support small businesses. The change will be in place as long as the facilities are active.”

In other words, the Fed will remove incentives for the remaining criminals on Wells’ staff to create fake bailout loans and profit from the Treasury’s guaranteed funds.

Some more details:

The Board’s growth restriction was implemented because of widespread compliance and operational breakdowns that resulted in harm to consumers and because the company’s activities were ineffectively overseen by its board of directors. The growth restriction does not prevent the firm from engaging in any type of activity, including the PPP, the Main Street Lending Program, or accepting customer deposits. Rather, it provides an overall cap on the size of the firm’s balance sheet. The change today provides additional support to small businesses hurt by the economic effects of the coronavirus by allowing activities from the PPP and the Main Street Lending Program to not count against the cap.

The Fed concludes that “the changes do not otherwise modify the Board’s February 2018 enforcement action against Wells Fargo. The Board continues to hold the company accountable for successfully addressing the widespread breakdowns that resulted in harm to consumers identified as part of that action and for completing the requirements of the agreement.”

The PPP program, while much needed by main street businesses, will in the coming years be revealed as an unprecedented criminal “free for all”, as tens of billions in funds are funneled into illicit organizations and shady deals.

This action, which is supposedly such a great move by the Federal Reserve, is a monkey hammer on any business who uses Wells Fargo.  They just took away the profit motive for Wells to produce any loans under this program.  So why would Wells write any loans?  They won’t!

It’s insane.

Do you realize how many businesses are hooked up to Wells that will now not be able to use this program?

Source: ZeroHedge