This slide deck contains information on the COVID-19 related Loan

Options & Forgiveness Strategies and is the most up-to-date as of

September 3, 2020.

Changes are constant and additional guidance is on-going. We will

keep you posted on changes through our weekly webinar updates and

COVID-19 resource center. You can also reach out to your Sax

advisor for the most recent information.

Please visit our Resource Center at www.saxllp.com for on-going

updates, or email covid19@saxllp.com with questions.

Preparing for COVID-19 Recovery:

Loan Options & Forgiveness Strategies

Update: September 3, 2020

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Our firm provides the information in this webinar presentation for general

guidance only, and does not constitute the provision of legal advice, tax advice,

accounting services, investment advice, or professional consulting of any kind.

The information provided herein should not be used as a substitute for

consultation with professional tax, accounting, legal, or other competent advisers.

Before making any decision or taking any action, you should consult a

professional adviser who has been provided with all pertinent facts relevant to

your particular situation.

Meet Our Recovery Task Force

Todd W. Polyniak, CPA

Partner

Stephen J. Ehrenberg,

CPA, MBT

Partner

Josh Chananie, CPA

Partner

Today’s Agenda

• Introduction

• Economic Injury Disaster Loan (EIDL) Refresher

• Updates

– New SBA FAQs

– Interim Final Rule

• PPP Loan Forgiveness

– FTE Reduction Exceptions

– When Should I Apply for Loan Forgiveness?

– Questions & Answers

EIDL Refresher

Economic Injury Disaster LoansRefresher

• Economic Injury Disaster Loan Program

– On June 15, 2020, SBA re-opened the program to all eligible small businesses

• Restrictions for agricultural-only businesses have been lifted

• Ends December 31, 2020

– $150,000 maximum funding

• Funding process has begun

• Collateral/personal guarantee requirements have changed

– $10K advance is no longer available

– No forgiveness aspect (other than potential $10K advance)

– Detailed application process through SBA

– 30-year amortization, 2.75% - 3.75% interest rate

Economic Injury Disaster LoansRefresher (cont’d)

• Loan proceeds may be used to:

– Provide paid sick leave to employees unable to work due directly to COVID-19;

– Maintain payroll to retain employees during business disruptions or substantial slowdowns;

– Meet increased costs to obtain materials unavailable from the applicant’s original source due to

supply chain interruption

– Make rent or mortgage payments; and

– Repay obligations that cannot be met due to revenue losses

• Interaction w/ PPP

– If an EIDL was received from January 31, 2020 – April 3, 2020 and it was not used for payroll

costs, there is no impact on the PPP loan

– If an EIDL was received from January 31, 2020 – April 3, 2020 and it was used for payroll costs,

the PPP loan must have been used to refinance the EIDL

– $10K advance will reduce PPP loan forgiveness amount

Updates

UpdatesNew SBA FAQs

• On August 11, 2020, the SBA released the following general PPP FAQs:

– FAQ #50: Indicates that the payment or non-payment of agent fees and/or other 3rd party fees is

immaterial to the SBA’s guarantee of a PPP loan or to the SBA’s payment of fees to lenders

– FAQ #51: Confirms that vision and dental benefits are included in group health care benefits

• Additionally, on August 11, 2020, the SBA released the following EIDL-related FAQs:

– FAQ #1: States that the SBA will confirm the EIDL Advance, if any, that will be deducted from a PPP

borrower’s forgiveness via a review of the Loan Forgiveness Application

– FAQ #2: Provides guidance for lenders in situations where there is a remaining balance due on a PPP

loan after the SBA has remitted forgiveness to the lender.

• In these situations, the lender must notify borrower of the loan forgiveness amount remitted to SBA

• Borrower must repay the loan by the maturity date

• SBA may seek remedy if borrower was ineligible for the PPP loan

– FAQ #3: Provides guidance in situation where EIDL advance exceeds the PPP loan balance

UpdatesNew Interim Final Rule

• On August 24, the SBA and Treasury issued an additional interim final rule covering:

– Corporate Owner Compensation: 5% or greater owners are considered owner/employees and

thus are subject to the following compensation limits:

• C-Corporations: 2.5/12 2019 compensation or

– $15,385 (8-Week Covered Period)

– $20,833 (24-Week Covered Period)

– No limit on health insurance or retirement benefits

• S-Corporations: 2.5/12 2019 compensation or

– $15,385 (8-Week Covered Period)

– $20,833 (24-Week Covered Period)

– No limit on retirement benefits

– Limit on health care costs for 2% or greater shareholders

UpdatesNew Interim Final Rule (cont’d)

• On August 24, the SBA and Treasury issued an additional interim final rule covering:

– Related Party Rents: Related party rent/leases are eligible for forgiveness, pursuant to the

following:

• Amount eligible for forgiveness is limited to the mortgage interest owed on the property

attributable to the rented space; and

• The rent/lease agreement and the mortgage were entered into prior to February 15, 2020

UpdatesNew Interim Final Rule (cont’d)

• On August 24, the SBA and Treasury issued an additional interim final rule covering:

– Non-Payroll Cost Eligibility: Amounts attributable to the business operations of a tenant or sub-

tenant of the PPP borrower, or household expenses of home-based businesses are ineligible for

forgiveness

• Example 1: A borrower rents an office building for $10,000 per month and sub-leases out a portion of the

space to other businesses for $2,500 per month. Only $7,500 per month is eligible for loan forgiveness.

• Example 2: A borrower has a mortgage on an office building it operates out of, and it leases out a portion of

the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited

to the percent share of the fair market value of the space that is not leased out to other businesses

• Example 3: A borrower shares a rented space with another business. When determining the amount that is

eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on

the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

• Example 4: A borrower works out of his or her home. When determining the amount of non-payroll costs that

are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were

deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings

PPP Loan Forgiveness

PPP Loan ForgivenessFTE Rehire Exceptions Summary

• Restore employees terminated between February 15, 2020 – April 26, 2020 by

December 31, 2020

• Maintain written documentation of:

– Employees fired for cause

– Employees who voluntarily resigned

– Employees voluntarily requested and received a reduction in hours

– Employees whose hours were reduced and the employee refused an offer to restore

hours at the same salary/wage

• Safe Harbor #1

– Good faith documentation of an inability to rehire personnel who were employees as of

February 15, 2020, as well as an inability to rehire similarly-qualified employees by

December 31, 2020

PPP Loan ForgivenessFTE Rehire Exceptions Summary (cont’d)

• Safe Harbor #2

– Good faith documentation of an inability to operate between February 15, 2020, and the end of the

Covered Period at the same level of business activity as before February 15, 2020 due to

compliance with requirements established or guidance issued between March 1, 2020 and

December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers

for Disease Control and Prevention, or the Occupational Safety and Health Administration related

to the maintenance of standards for sanitation, social distancing, or any other worker or customer

safety requirement related to COVID-19

PPP Loan ForgivenessWhen Should I Apply for Forgiveness?

• Absent governmental action, the deadline to apply for PPP loans has passed (August 8, 2020)

• Many borrowers have moved on to forgiveness

– Common theme surrounds the timing for application for forgiveness

• While we understand the desire to put this in the rearview mirror, our position is to hold off on

filing for forgiveness:

– Do you really want to be first?

– Changing rules

– Lenders are not ready to accept loan forgiveness application

– Covered Period extended from 8 weeks to 24 weeks

– 10-month post-Covered Period loan forgiveness application deadline

– Revised loan application form

– Loan forgiveness thresholds

– Payroll companies can’t provide accurate reporting

PPP Loan ForgivenessQuestions & Answers

1. Question: What are the owner compensation payroll cost thresholds for partners in a partnership?

Answer: General partners are capped by the amount of their 2019 net-earnings from self-employment,

reduced by claimed Sec. 179 expenses, unreimbursed partnership expenses and depletion from oil and

gas properties. This net amount, subject to the $100K cap, is then multiplied by .9235 to arrive at the

maximum owner compensation eligible for forgiveness.

2. Question: If we cannot restore our pre-February 15, 2020 headcount, what can we do to avoid a

decrease in forgiveness amount due to FTE reduction?

Answer: If headcount cannot be restored by December 31, 2020, one of the two safe harbors discussed

on the prior slide would need to be applied.

3. Question: If the PPP loan is forgiven, are the associated expenses deductible for tax purposes?

Answer: While there is momentum towards deductibility, as of now, borrowers are precluded from

deducting the expenses. Note that timing issues could exist if PPP forgiveness is received after 2020.

PPP Loan ForgivenessQuestions & Answers (cont’d)

4. Question: What are the pros & cons of selecting the 8-week Covered Period vs. the 24-week?

Answer: The 8-Week Covered Period is more beneficial in situations when all the funds have been

expended during the allotted period, but there is a 25% or greater reduction in salary. The 24-Week

Covered Period tends to be more beneficial to borrowers that need additional time to exhaust the funds

(possibly due to the fact that operations were reduced in the earlier part of 2020). However, borrowers with

salary reductions in excess of 25% will look to avoid the 24-Week Covered Period, as the impact of the

salary reduction is spread throughout the 24 weeks irrespective of when the loan forgiveness application

form is filed.

5. Question: Can you apply for forgiveness prior to the close of the 24-week Covered Period if all PPP funds

have been expended?

Answer: You are not required to wait for the 24-week Covered Period to expire to apply for forgiveness.

However, FTE reductions and salary reductions, if any, should be considered.

6. Question: Does the selection of the 8-Week or 24-Week Covered Period apply to Payroll Costs and Non-

Payroll Costs?

Answer: Yes, borrowers would apply the same Covered Period to both Payroll and Non-Payroll Costs,

although borrowers are given the option to select the Alternative Covered Period for Payroll Costs.

PPP Loan ForgivenessQuestions & Answers (cont’d)

7. Question: Is there a possibility of automatic forgiveness for PPP loans less than certain levels and/or

business income is 50% below that of pre-COVID-19 levels?

Answer: There has been discussion surrounding automatic forgiveness for loans below certain

thresholds, but nothing has been finalized as of yet. PPP 2.0 may address additional funding in

situations where there is a reduction in revenue, but this is not law as of yet either.

8. Question: How is forgiveness impacted when a high-salaried employee (> $100K) chooses not to

come back to work and business income does not allow for a rehire?

Answer: FTE rehire safe harbor #2, if applicable, would have to be considered.

9. Question: Are less than 5% C-Corporation and S-Corporation owner-employees included in the FTE

reduction calculations (i.e., Table 1 or Table 2 of the loan forgiveness application)?

Answer: No. Owner-employees would not be included in Table 1 or Table 2 of the loan forgiveness

application as presently constructed. Note that ownership percentage nor type of entity should impact

this conclusion

PPP Loan ForgivenessQuestions & Answers (cont’d)

10.Question: Will FTEs be measured at the time the PPP loan forgiveness application is filed or at

December 31, 2020?

Answer: This is somewhat of an open question, as we are still awaiting guidance for situations where

the borrowers plan to restore headcount and/or salary by December 31, 2020. However, absent this

situation, the loan forgiveness application form requests FTEs as of the date of the application.

PPP Advisory Services

Upcoming Webinar

TBD

Recovery Update: COVID-19 Loan Options and Forgiveness Strategies

• For additional questions: Email Covid19@saxllp.com

• Visit Sax’s COVID-19 Resource Center found on Saxllp.com to register for

webinars and for on-going information and resources.

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