To Our Clients and Friends:
We hope everyone is staying safe, sane and doing well. It's been a while since you heard from me, but it wasn't because I didn't want to provide updates. It was because providing an update would have only caused more confusion because until Friday night we didn't have any forgiveness guidance. And as you will find out soon enough, although we have a forgiveness application, we will need a lot of "guidance" on this.
Let's recap. The CARES Act was signed into law on March 27, 2020. The SBA issued a PpP (I trademarked this) application on March 31st. They stated the program would go live 4/3 but nobody knew how it was going to work (banks, SBA, borrowers, accountants (except one Firm)). They issued their first set of "interim final guidance" at 10:34pm on 4/2 for a program rolling out on 4/3. Since then they have issued 10 more sets of "interim final" guidance as well as 47 frequently asked questions over the span of 44 days. The guidance on forgiveness was due no later than 30 days after passing of the Act, so they were 20 days late and right now all we have is an application without guidance, and as you will see guidance is needed. All the while many of you are funded, some never missed a beat, others are still closed, some are just now opening (in full or partially), and others have been partially opened since this started. We know it's been hard hearing we don't know, we don't know, but truth be told we didn't and really still don't. The big problem with this has been and continues to be the guidance being issued by Treasury is contradictory to the intent of Congress. It's been stated over and over by numerous members of Congress. Nobody really knows what they are doing is what I have come to determine over the last 2 months. I'm certain many saw the news that the IRS issued notice 2020-32 stating that although the Cares Act called for any loan forgiveness to be non-taxable they took it upon themselves to state the amounts paid would not be deductible. That makes it taxable and I can show you how corporations are treated differently than sole proprietors and partnership using this premise, so I know it cannot be correct. Numerous members of Congress have stated this is against their intent and a bill has already been introduced stating such. The bill passed in the House yesterday (HEROES Act) also fixes this if signed into law. The deductibility was always the pot at the end of the rainbow for those who used the PpP to keep employees on payroll, by also thanking businesses by giving the tax deduction as well. It's the intent of Congress and this more than likely gets fixed.
The folks in charge of this also did a good job of allowing the media to put a spin on the program. Congress fully expected some of the public hospitality companies to apply and then they did and were publicly shamed for it and forced to give it back. You know what happened to their employees? They went on unemployment. They started scaring other businesses by trying to define terms like "necessary" and "uncertainty" and "liquidity". Finally on May 13th they issued FAQ 46 which states all loans less than $2M were deemed certified as far as "necessarily" needing the funds. They have been very sneaky on rolling out this program and I have called them on it. I predicted on May 5th that the forgiveness was coming May 15th, which was the day after companies had to "return to lender". They changed this on the 14th to the 18th in order for companies that returned and were less than $2M to reapply but they couldn't wait any longer to issue forgiveness language as multiple members of Congress stated on the 14th it was coming within 24 hours. The Inspector General said in a meeting Friday it was supposed to come sometime on the 15th. Either way it's here and anyone less than $2M are deemed certified to have needed.
So what's next you may ask? The answer continues to be we don't know. The loan forgiveness application is posted on our website along with an article from Forbes related to this that pretty much sums it all up. As you will see reading the article they have made the forgiveness a debacle as well. I can poke 30 holes in it and therefore we know additional guidance is needed. It was the same with the Act, however the guidance issued created more holes to be poked. Spend the money on the 4 intended purposes (sorry owners any bump in your pay over 2019 is not allowed, that's in the application), payroll costs, mortgage interest, rent, & utilities. Don't spend the PpP money on anything other than those 4 things. There was never a need to have a separate account, simply track the expenses over the 8-week period (which you will see may have different definitions).
What have I been doing since you last heard from me you may be wondering? I can tell you it hasn't been tax returns for those inquiring minds. I have been listening to webinars on this, listening in on Congressional meetings on this, sending tweets to Marco Rubio (he responded to me directly), Steve Mnuchin, the SBA, doing interviews with Forbes and CNBC, advocating for all of you so they get this thing right. I fully expect the powerful voices of the financial community to force them to get this thing corrected. I also read the 1,815 pages of the new HEROES Act for fun (a good summary of this is also on our website). I know it's dead on arrival in the Senate they have said but they don't write legislation like this for fun. The business stuff in there (in the 200-300 section) and the items that help fix this PpP nonsense (pages 821-878) are good for business owners. I certainly expect this nonsense to get fixed but in the meantime I wanted to at least update everyone we had a forgiveness application, although without "guidance". Maybe we should do what an official from the Houston SBA office said in a webinar, simply "pray for forgiveness".
I've tried to keep a good head throughout all of this and it's been easy because I believe we did the right thing for our clients. We acted swiftly and luckily precisely for all of you. Our team has done a great job throughout this and doing it remotely. We were able to secure over $30M in funds for clients (simply amazing), and we likely will not get paid on a vast majority of it (a whole other story), but we are fine with this, we did it because it was the right thing to do. We thank all of you for your patience on the tax side (yes someday I will start doing returns again). With July 15th being the new deadline, this simply took precedence over that specifically for me. Someone has to read all this, decode it and make sense of it. There's more decoding to be done on forgiveness and let me tell you if the HEROES Act gets passed (I fully expect parts of the business stuff to be included in any final bill) it's game changing for all of us.
Go to the website for the 11-page application and then read the article to follow along the application. Tony does a great job of doing the play by play. He's a great writer and has become a good mentor for me. A great dude with an even greater backstory.
You will hear from me again, until then, stay safe, social distance and keep your loved ones close.