PILLA TALKS TAXES - Featured Article(s)
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WHAT TO DO ABOUT PPP LOANS

Critical Year-End Planning Considerations 

With 2020 winding to an end, there are a few important considerations for dealing with PPP loans before the end of the year. Here’s what I’m talking about. 

1. Separate accounting. You must ensure that you can separately account for your PPP expenditures—for two reasons. First, if you used PPP money only for the expenses authorized under the program (discussed further below), your loan is forgivable. Of course, your goal is to in fact get the loan forgiven. Therefore, you must be able to demonstrate to your lender (for sure) and to the IRS (if challenged) that the money was used only as authorized by law. Second, as you know from the lead article above, you cannot deduct PPP loans to the extent that the loan is forgiven. Thus, your accounting must be able to show that you did not include a deduction for expenses—payroll, for example—that were paid with PPP proceeds. The burden of proof is on you. And, as discussed in the next article, a potential IRS attack might not be limited to just a civil audit. The IRS has already opened hundreds of criminal investigations related to potential PPP loan fraud. 

2. Organize your documents. In the August issue of this newsletter, I discussed the likely PPP audit issues. In anticipation of that, be sure you organize your documents to show that you qualified for a PPP loan in the first place, and that you used the proceeds as allowed by law. Keep in mind that PPP money can be used only as follows: 
   
       1. Payroll costs (at least 60% of your loan must be used for payroll),
       2. Interest (but not principal) on a mortgage obligation existing as of February 15, 2020,
       3. Rent on business property existing as of February 15, 2020, and
       4. Utility payments on business property existing as of February 15, 2020. 

In addition to the audit issues I identified in August, there are more potential audit issues as explained in the above article. The bottom line: don’t be surprised by a PPP audit. Rather, assume you will be audited and be sure you have your documents lined up in advance. 

3. Spend the money. The deadline for spending PPP proceeds is either: (a) 24 weeks from the date the loan was funded, or (b) December 31, 2020, whichever comes first. If you have not spent your PPP proceeds by the end of the year, you must do so, and spend it on one or more of the four items listed above. If you do not, you will not get forgiveness of your loan to the extent that you didn’t spend the money within the time allowed by law. See the July 2020 issue for more discussion of the deadline for spending PPP proceeds.
   
   
4. Apply for forgiveness. You must apply for loan forgiveness within ten months of the deadline for spending PPP proceeds. Depending upon when your 24-week calculation expires, you might already be well into your application deadline. In any event, don’t wait. I believe all SBA lenders are now processing forgiveness applications. In the August and October issues of PTT, I discuss the application process at length. Please review that material for further guidance. You should also check with your lender. They may have unique procedures or particular forms they require to facilitate the application/forgiveness process.

This is an article from the December 2020 issue of Pilla Talks Taxes Newsletter.  

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I've been reading up on the deferment of Social Security and Medicare. 
Please tell Dan his article on deferring SS and Medicare was by far the best 
and most complete article on the subject I have seen…Great job!!!   Dave N. CPA, CTRS Fircrest, Washington