The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. This presentation helps business owners understand how the PPP works and how they can utilize for their business.

May 29th, 2020

New PPP Legislation

Yesterday, the House of Representatives passed a new bill easing rules for PPP loans. The Senate has similar legislation in process, so it seems likely something comparable to the House bill will soon become law.

Following are highlights from the bill:

Extension of Eight-Week Forgiveness Period

The house changes the period in which PPP loan proceeds can be spent and count toward forgiveness to 24-weeks from the original eight-week period. However, there is also a hard cut-off of December 31, 2020 for the spending to count toward forgiveness.

Easing of FTE Reduction

The legislation provides an additional exception to the reduction of loan forgiveness if the business can document that during the period from March 1, 2020 through December 31, 2020, it was unable to return to the same level of business activity it had before February 15, 2020.

In addition, the FTE reduction won’t apply if the employer can document its inability to rehire the same employees or similarly qualified employees by December 31, 2020.

Expansion of Employer Payroll Tax Payments to Businesses with PPP Forgiveness

The original CARES Act allowed employers to defer payment of the employer portion of Social Security Tax (or half of the self-employment tax). Fifty percent was deferred to December 31, 2021 and the other 50% was deferred to December 31, 2022. However, the original act prohibited any business who had PPP loan forgiveness from receiving the deferral. The House legislation allows businesses to defer the Social Security taxes even if they receive loan forgiveness on a PPP loan.

Extension of Loan Maturity for PPP Loans

The House legislation extends the maturity of any portion of unforgiven PPP loans to a minimum of five-years instead of the prior maximum of 2 years.

Prospects in the Senate

Earlier versions of House legislation contained numerous provisions that were opposed by Senate Republicans. This new legislation stripped out all the provisions other than those listed above. The Senate has proposed bills similar to this House legislation and prospects for passing this package or a similar package look very good. If the Senate does pass this legislation and President Trump signs it into law, most businesses will be able to have their PPP loans forgiven.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 27th, 2020

CARES Act – PPP Loan Forgiveness

The SBA has released guidance on the PPP loans in a very scattered manner. This email pulls all that guidance together into one description of how the PPP loan forgiveness is calculated.

The original amount of the PPP loan was 2.5 times the average monthly payroll of the borrower for a base period. Any wages over $100,000 per year were excluded from this calculation. The forgiveness of the loan is based on the amount spent on specific purposes in an eight-week period. The allowable purposes are payroll (including certain benefits), rent, utilities, and interest on secured debt. The amount of loan forgiveness may be reduced for reductions in the business’s FTE employees or reductions in employee wages. Since the enactment of the CARES Act, the SBA has issued guidance on almost every aspect of the loan forgiveness calculation.

Timing of the Eight-Week Period for Calculating Loan Forgiveness

The eight-week period for expenditures that count for loan forgiveness generally begins on the date the initial loan proceeds are deposited into the business’s bank account. However, the business can elect a different period that is used only for the payroll cost portion of the calculation. Electing businesses can use the eight-week period that begins on the first day of the next payroll period after the deposit of the loan proceeds. Even if the business makes this election, the eight-week period for non-payroll costs still begins with the date the loan proceeds are deposited to the business’s bank account.

Use of Cash Versus Accrual Accounting on Expenditures

The language of the CARES Acts was unclear regarding whether the forgiveness was based on the payments during the eight-week forgiveness period or based on the costs that are incurred during the eight-week period. The SBA addressed this issue by allowing both. A borrower can include costs if they were paid during the eight-week period. In addition, the borrower can include costs that were incurred during the eight-week period but not paid until the following invoice period. Thus, depending on the timing that the business uses for paying its expenditures, more than eight-weeks of costs may be included in the calculation. Note that the business must pay the incurred costs before the end of the next billing cycle in order to count them toward the debt forgiveness.

For example, assume that a business pays two utility invoices for $500 during the eight-week loan forgiveness period. Furthermore, the eight-week period ends half way through the following billing period. The business pays the $500 bill for the following period before the end of the next billing period. This business can include $1,250 of these utilities toward the debt forgiveness (The two paid invoices plus half of the next invoice for the utilities incurred during the eight-week period).

Payroll Costs

Payroll costs paid or incurred during the eight-week period for loan forgiveness can be applied toward the loan forgiveness amount subject to a couple of limitations. These limitations apply at the employee level, so the calculation is very detailed. Note that the employer has two options for selecting the eight-week period as discussed in “Timing of the Eight-Week Period for Calculating Loan Forgiveness” above.

The employer needs to total the gross wages paid to the employee during the eight-week period. This wage figure is before any employee taxes or employee deductions. Next the employer needs to calculate the accrued wages at the end of the eight-week period. This is the amount of gross wages that the employee has earned but not yet been paid since the last payroll period. The SBA refers to the total of these gross wage amounts as cash compensation.

The business should then total the employer payments for health-insurance, qualified retirement benefits, and state and local employer taxes (state unemployment and local occupational privilege taxes) by employee. The SBA refers to these costs as non-cash benefits.

The total wages for each employee that count toward debt forgiveness are limited. The calculation of the limitation depends on whether the employee is also an owner of the business. At this point in time, the SBA has not applied any de minimis exceptions to the ownership rules for any employees with very small ownership in the business.

If the employee is not an owner of the business, the total cash wages are limited to $15,385. For non-owner employees, the non-cash benefits are not subject to the $15,385 limitation.

If the employee is an owner of the business, there are two limits that apply. First, the $15,385 limitation applies to the total that can be applied to the loan forgiveness. Not only is the cash compensation limited to this amount but the health-insurance, retirement benefits, and state and local employer taxes are also subjected to the limit.

The second limitation that applies to owner-employees is that the total applied toward the debt forgiveness cannot be more the 8/52 of the 2019 compensation including non-cash benefits. For owners with at least $100,000 in 2019 compensation, this additional limitation will not have any effect on the calculation.

For self-employed individuals, the amount of income that applies toward the debt forgiveness is 2/52 of the 2019 self-employment income. This total debt forgiveness for self-employment income is limited to $15,385 for each self-employed person.

The business will need to include the following documentation with the application for loan forgiveness:

  • Payroll reports documenting the cash compensation paid to each employee during the eight-week period,
  • Bank statements showing the payments if the employer processes their own payroll,
  • Tax forms (or equivalent reports from a third-party payroll service provider) for the periods that overlap the eight-week period,
  • State quarterly business and individual employee wage reporting and unemployment insurance tax filings to the states,
  • Payment receipts, cancelled checks, or account statements documenting the employer contributions to employee health insurance and retirement plans if they are included in the forgiveness calculation,
  • Documentation of the average number of FTE employees during the base period the business has used for the FTE calculation.
  • Documentation of the average number of FTE employees during the eight-week forgiveness period.

Non-Payroll Costs

Borrowers may apply certain non-payroll costs toward debt forgiveness on the PPP loans. However, the SBA has limited these costs to 25% of the total amount of loan forgiveness. The costs that can be used for loan forgiveness are rent, interest on secured loans, and utilities if these costs relate to arrangements that existed as of February 15, 2020.

Both real estate and tangible personal property (i.e. equipment leases) rent count towards loan forgiveness. The business will need to submit one of the following as documentation of the payments:

  • Copy of current lease agreement and receipts or cancelled checks verify eligible payments
  • Lessor account statements from February 2020 and from the eight-week forgiveness period plus the month after the period.

The interest on the secured loans include loans that are secured by real estate as well as loans secured by tangible personal property. The loans must have been in existence on February 15, 2020. The business will need to submit one of the following items for documentation:

  • Lender amortization schedule and payment receipts or copies of cancelled checks,
  • Lender account statements from February 2020 and the months included in the eight-week forgiveness period plus the month after the period.

Business utility payments include electricity, gas, water, transportation, telephone, or internet access. The business will need to submit copies of one of the following:

  • Invoices from February 2020 and those paid during the eight-week period, and one of the following to document the payments
    • Receipts,
    • Cancelled checks, or
    • Account statements.

Reductions of Loan Forgiveness Amounts

The amount of loan forgiveness must be reduced by reductions in FTEs from the base period as well as for reductions in pay of employees. However, there are exceptions so that some reductions may not reduce the loan forgiveness amount.

Reduction for Reducing the FTEs

As a general rule, a business must reduce the amount of loan forgiveness proportionally for reductions in employee FTEs from a base period. The percentage reduction applies to the total loan forgiveness, not just the payroll cost portion. However, there are exceptions to these reductions. The business has the following options for choosing a base period for calculating the reduction:

  • February 15, 2019 through June 30, 2019,
  • January 1, 2020 through February 29, 2020, or
  • If the employer is a seasonal employer, any consecutive twelve-week period between May 1, 2019 and September 15, 2019. The SBA has not yet issued guidance defining the term “seasonal employer”.

The business has two options for calculating FTEs. However, the same methodology must be used for all purposes. Those options are:

  • Total each employee’s hours for the base period. If an employee works at least 40 hours per week, that employee counts as 1 FTE. If the employee works less than 40 hours per week, the number of average weekly hours during the base period divided by 40 hours per week produces the FTE of the employee. For example, if an employee averages 30 hours per week, that employee would count as 0.75 FTE (30 hours/40 hours).
  • Each employee working at least 40 hours per week would represent 1 FTE. Each employee working less than 40 hours per week would represent 0.5 FTE.

The exceptions to these rules complicate the calculation but can greatly benefit the business. Following are the exceptions:

  • If the business restores the FTEs to the average for the base period by June 30, 2020, there is no reduction to the loan forgiveness. Note that as the rules currently stand, this exception is all or nothing. An employer doesn’t receive partial credit for restoring a portion of the FTE reduction.
  • If the business makes a bona fide written offer to the employee to return to their position at the same pay and the same hours but the employee rejects the offer, that employee does not count as a reduction in the FTEs. However, the employer must document the rejection of the offer and notify the state unemployment office of the rejection within 30 days of the employee’s rejection of the offer.
  • If an employee voluntarily leaves employment, that employee does not count toward the reduction in FTEs.
  • If a business terminates an employee for cause, that employee does not count toward the reduction in FTEs. The business must document that the termination was for cause.

In addition to the FTE reduction, the business must reduce its loan forgiveness for the amount of reductions in employee pay over 25%. However, there are three exceptions to this reduction:

  • If the business paid the employee an annualized wage of $100,000 or more for any pay period in 2019, there is no reduction for that employee. For example, if a business paid an employee $1,000 per week on a weekly payroll in 2019 and gave the employee a Christmas bonus in one of the December paychecks, that employee would have been paid $2,000 for one weekly payroll period in 2019. That annualizes to $104,000 and any reduction in the employee wage would not create an adjustment to the loan forgiveness amount.
  • If the employee is restored to their former base pay amount by June 30, the wage reduction adjustment does not apply.
  • To the extent that the reduction in pay was due to a reduction in the work hours for the employee, the reduction does not apply.

The reductions in the amount of forgiveness are applied before the comparison to the amount of the loan on the SBA form. As a result, the reductions will not always actually reduce the amount of loan forgiveness. For example, assume that a business has an $80,000 PPP loan. The business has $100,000 of eligible costs for loan forgiveness. The business also has a 15% reduction in FTEs. When the business applies the 15% reduction to the $100,000 in eligible costs, the result is $85,000. Since this amount is higher than the loan amount, the full $80,000 of loan is still forgiven.

Effect of EIDL Loan Advance

The amount of loan forgiveness is reduced by any advances the borrower received on EIDL loans. Note that the business has the option of rolling the EIDL loan advance into the PPP loan. Doing so increases the total amount eligible for forgiveness.

Application for Loan Forgiveness on Form 3508

To receive forgiveness on the PPP loan, the business must submit SBA Form 3508 to the SBA along with all the required documentation. The form includes several sections that must be completed. The first section is general information to allow the bank and SBA to identify the borrower, the loan, and the periods that apply for the eight-week period and the base period.

The next section is a summary calculation that totals the costs that apply toward loan forgiveness. Then the calculation adjusts for any reductions for reduced FTEs or wages and compares to the total amount of the loan amount to calculate the total loan forgiveness.

The next section of the form is a series of certifications that the business must make in order to have loan forgiveness apply.

PPP Schedule A follows the certification and calculates the payroll cost portion of the forgiveness on a summarized basis.

PPP Schedule A Worksheet is where the bulk of the detail calculations are performed. It splits employees into those who made less than $100,000 in all 2019 pay periods, and those who made more than $100,000 in all 2019 pay periods. Detail payroll information is then provided for those employees.

Proposed Changes in Congress

There are proposed bills in the House and the Senate that would eliminate the requirement that 75% of the loan forgiveness be for payroll costs and extend the eight-week period for loan forgiveness. In addition, there are proposals to eliminate the reduction for FTEs. Although passage of bills is uncertain until Congress votes on them, there seems to be substantial support in Congress for making changes. If your business is affected by these items, you should consider waiting to submit your application for debt forgiveness to avoid needing to amend it.

In addition, the SBA seems to constantly adjust and add to the rules for the program. We will continue to keep you up to date on new developments.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 26th, 2020

CARES Act – PPP Loan Forgiveness

On Friday, May 22 the SBA issued additional guidance for the calculation of loan forgiveness on the PPP loans. This newsletter will summarize the changes to the guidance. Tomorrow we will publish a newsletter that summarizes the calculation of the PPP forgiveness as it currently stands under SBA guidance.

New Guidance

Adjustment for Reduction in FTEs

One aspect of the rules for calculating the amount of PPP loan forgiveness is a reduction if the employer reduces the number of FTE employees from the base period. Three items in recent SBA announcements guide borrowers on making this adjustment.

Based on the SBA guidance, a 40-hour standard work week is used to calculate an FTE. If an employee works 40 or more hours, that employee counts as one FTE.

For employees who work less than 40-hours per week, the business has two options. The standard option is to take the average weekly hours of that employee and divide by 40. Thus, an employee who work 30 hours would be .75 FTE. The other option is to treat each part time employee as 0.5 FTE. This option could be beneficial for some employers.

If an employee from the base period left voluntarily, or was fired for cause, that FTE does not count against the reduction. For employers who traditionally have high employee turnover, this could drastically change the FTE calculation. Note that the business must maintain records that demonstrate that the employee left voluntarily or was fired for cause.

Adjustment for Reduction of Employee Pay

In addition to the reduction of loan forgiveness for reduced FTEs, the PPP program reduced loan forgiveness for reductions in employee pay. The new SBA guidance provides that this reduction applies only to the extent that it is not attributable to reduced hours. The reason for this guidance is to avoid double counting reduced employee hours in both the FTE calculation and the reduced wages calculation.

For example, assume an employer had an employee who was part time in both the base period and the loan forgiveness period. In addition, that employee’s hours dropped from 30 hours per week to 20 hours per week and their wage rate was dropped from $15 per hour to $13 per hour. If the employer elects to count FTEs based on each part time employee equaling 0.5 FTE, there is no reduction for this employee for the reduced hours. In addition, since the wage cut from $15 per hour to $13 per hour is less than 25%, there is no reduction in the PPP forgiveness for the reduced wages.

Limitation on Pay for Owners

The new guidance restricts the amount of loan forgiveness for wages/income of owners to 8/52 of the 2019 compensation. If the owner had at least $100,000 total earnings, this limit will not affect the calculation since the calculation is limited to $100,000 in annualized income anyway.


These changes will have a major impact on some employers. In particular, any employers who have significant voluntary employee turnover after the base period should be able to achieve significantly more loan forgiveness than previously expected. Employers who have reduced hours for part-time employees should also benefit greatly from the new guidelines.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 19th, 2020

CARES Act – New Information on PPP Loan Forgiveness

Yesterday, we identified several new SBA rules that were included in the forms and instructions for loan forgiveness published on May 15. Based on further review of the forms and instructions there is an additional rule we would like to point out.

Calculation of the $100,000 Annualized Payroll Cost Limit is Different for Owners

The SBA previously indicated that the $100,000 limit applies only to gross pay and does not apply to employer contributions to retirement plans, health care, or state and local employment taxes. Based on the new SBA guidance included in the instructions, this rule only applies to compensation for non-owners. For any individuals who are owners of the business, all the benefits included in the payroll cost calculation are subject to the $100,000 annualized income limit. Thus, the total forgiveness for payroll costs for an owner are subject to the $15,385 limit including all payments of retirement plan contributions, employee health insurance, and state and local employer taxes.

For non-owner employees, these benefit costs continue to be excluded from the $15,385 limit.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 18th, 2020

CARES Act – New Information on PPP Loan Forgiveness

The Small Business Administration (“SBA”) published forms and instructions for loan forgiveness on May 15. The loan forgiveness application and instructions provide additional details on the calculation of loan forgiveness. Generally, these details expand the flexibility of the calculation.

Calculation of Wage Portion of Payroll Costs

One of the open questions on PPP loan forgiveness was whether the SBA would calculate loan forgiveness based on employee pay dates (cash basis) or based on the time period when employees earned the wages (accrual basis). The surprising answer is both. Borrowers can include wages that are paid during the eight-week period and wages that are incurred during the eight-week period (but cannot count the same wages twice). This effectively means that the borrower can count more that eight-weeks of wages. However, it is important to note that only eight weeks of wages for an owner-employee or self-employed individual can be counted.

Example 1

Assume that X is an S Corporation with two owner-employees and one employee who is not an owner. X pays its wages bi-weekly basis. Owner 2 receives $4,000 per pay period. Owner 1 and the employee receive $3,000 per pay period. X received its PPP loan on May 1, 2020. X’s eight-week period is from May 1 to June 25. May 1, 2020 was also a pay date. The pay of the employee is $3,000 on May 1, May 15, May 29, and June 12 for a total of $12,000. In addition, the employee has earned $2,700 in wages for June 15 through June 25 that will not be paid until June 26. The total wages counting toward the loan forgiveness for the employee is $14,700.

X can only count eight weeks of wages for the owner-employees. Owner 1 has the same pay and earnings as the employee. However, X can only count $12,000 of wages for Owner 1.

Owner 2 has $16,000 of earnings for the eight-week period. However, X can only count $15,385 in wages toward the debt forgiveness because of the annualized $100,000 cap on wages.

In total, X can count $42,085 in wages toward the loan forgiveness.

Limited Flexibility on Eight Week Period

If a borrower uses biweekly or more frequent payroll schedule, that borrower an elect an alternate eight-week period for calculating the payroll costs. The alternative eight-week period begins the first day of the first pay period following the funding of the PPP loan. If the employer always pays on the last day of the payroll period, then one effect of the alternative eight-week period is that the wages included in the calculation will match the wages paid in the period (i.e. the wage calculation will match the cash method). However, some employers may receive additional debt forgiveness if they pay on a delayed basis or if they increase their payroll as they go through the eight-week period.

Example 2

Assume the same facts as Example 1 except that X does not pay its owners wages. X’s eight-week alternative period for payroll purposes is May 4 through June 28. The total forgiveness for the employee is $12,000. The $2,700 reduction from the standard eight-week period is because of the loss of the accrued wages for the employee after the last pay date.

Example 3

Assume the same facts as Example 2 except that X pays its payroll one week following its payroll cutoff period. Thus, X pays the payroll earned through May 1 on May 8.

Using the standard eight-week period, X would include the payroll paid on May 8, May 22, June 5, and June 19 for a total of $12,000. In addition, the employee earned wages from June 15 through June 25 for $2,700. The total wages included for the employee is $14,700.

If X chose the alternative eight-week period, the same payroll dates would be included in the calculation. However, the employee would earn one extra day’s wages before the expiration of the eight-week period so that ten days wages would be earned after the last payroll. The employee’s wages for the debt forgiveness calculation would increase to 12,000.

Example 4

Assume the same facts as Example 2 except that the first pay date during the eight-week is on May 8 and covers wages through that date. In addition, X hires employee 2 on June 8 at $3,000 per pay period.

Using the standard eight-week period. Employee 1 receives $3,000 on May 8, May 22, June 5, and June 19 for a total of $12,000. In addition, Employee 1 earns four days of wages from June 22 through June 25 for $1,200. X can count $13,200 in wages for employee 1 toward the debt forgiveness.

Employee 2 receives $3,000 on June 19 and earns four days of wages from June 22 through June 25. X can count $4,200 in wages for employee 2. X can apply a total of $17,400 in wages toward the loan forgiveness.

If X chooses the alternative eight-week period, the eight-week period is from May 9 through July 2. X counts the payrolls paid May 22, June 5, June 19, and July 2 for employee 1 for a total of $12,000. Employee 2 receives $3,000 in wages on June 19 and July 2 for a total of $6,000. In total X can count $18,000 of wages toward the loan forgiveness.

Equipment Rent Is Included in Lease Payments

SBA clarified in the instructions that the lease payment include both leases for personal property and real property. Previously, there was a lack of clarity on whether personal property rent would apply toward the loan forgiveness.

Self-Employed Individuals Do Not Need to file the 2019 Return Before Claiming Forgiveness

To claim forgiveness based on the self-employment income on the 2019 return, individuals must have that self-employment income calculated. However, the forms suggest that the 2019 return does not necessarily need to be filed before applying for forgiveness. The forms require certification that the tax documents submitted to the lender are consistent with those that the borrower has submitted or will submit to the IRS and/or the state. This suggests that there is no requirement to file the forms with the IRS before applying for debt forgiveness.

One example where this is important is that if a self-employed individual has the information to complete the accounting for their business but is still waiting on other tax information such as K-1s. That individual can complete the Schedule C and Schedule SE but wait to complete the return until the additional information is available.

The Number of FTEs is Based on a 40-hour Work Week

Most commenters believed that the SBA would use a 30-hour work week to calculate the number of full time equivalent employees. The instructions specify a 40-hour work week instead.

Record Retention Requirements

The borrower must keep copies of all records necessary to support the initial loan application and the loan forgiveness amount for six years after the date the loan is forgiven or repaid in full.

Non-Payroll Costs Can Also Be Included in the Calculation if They Are Paid or Incurred

All costs included in the calculation can be included if they were paid or incurred during the eight-week period. However, non-payroll costs that are incurred must be paid by the next billing cycle for inclusion. This means that it is possible to include more than eight-weeks of these expenses in the calculation.

More Guidance is Yet to Come

The SBA intends to issue additional guidance on the forgiveness calculation. The SBA keeps making numerous substantive changes to the program so watch for updates.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 14th, 2020

CARES Act – Additional SBA Changes May Allow Added Funding on PPP Loans

The Small Business Administration (“SBA”) published new guidance on May 13 that allows some companies to obtain increased funding on their previously funded PPP loans. The new funding is available for some partnerships and some seasonal employers. This new guidance fixes some major issues in the PPP loan program. However, the SBA is providing a short timeframe to apply for additional funding under this guidance. Businesses must apply for the additional funding by May 22 or within 20 days of the approval of their loan.

Partnership Changes

On April 14, the SBA made a major change in the way the PPP loans apply to partnerships. Prior to this change, a partnership was supposed to apply for its PPP loan based only on wages it pays to employees and the individual partners were supposed to apply for PPP loans based on their self-employment income. The April 14 guidance changed the rules so that the self-employment income of the partnerships could only be included in the PPP loan application of the partnership.

This change created a major issue for partnerships that had already applied for PPP loans. The loan amounts on those applications were based only on the employee wages of the partnerships and did not include the partner self-employment income. Each business is only allowed to apply for one PPP loan and the partners were no longer allowed to obtain their individual PPP loans.

The new guidance that the SBA issued on May 13 corrects this issue. Partnerships can obtain additional funding on their PPP loan to add the self-employment income of the partners to the loan calculation.

Seasonal Employers

The CARES Act provided two base time periods for seasonal employers to calculate their loan amount: the 12-week period beginning February 15, 2019 or the period from March 1, 2019 through June 30, 2019. For seasonal employers whose peak employment is outside these time periods, these options did not allow loans that properly cover the employers’ payroll needs.

The SBA added an additional option for the business to choose any 12-week base period that falls between May 1, 2019 and September 30, 2019. For any seasonal employers whose peak employment falls in the summer, this option should produce a large loan.


Businesses who may qualify for additional PPP funding because of the new SBA guidance should move quickly to recalculate their loan amounts. Then they should consider filing an amended loan application to increase their forgivable loan amount.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 13th, 2020

CARES Act – Additional SBA Changes on Issue of Criminal Liability

The Small Business Administration (“SBA”) published new guidance today easing their previous rules on potential criminal penalties. This new guidance applies separate rules to borrowers depending on whether the total PPP loan amount for the borrower and affiliates exceeds $2 million.

Borrowers of Less than $2 Million

The SBA has added a safe harbor that any borrower with less than $2 million of PPP loans on an affiliated basis will be deemed to have made the loan certification in good faith. That means any borrower who received less than $2 million needs no additional analysis to document that they were eligible for the SBA PPP loan. Note that if a group of companies with common ownership or control exceed the $2 million threshold in total, none of those companies qualify for this relief.

Borrowers of More than $2 Million

The SBA also modified their guidance for loans greater than $2 million. The SBA has stated that they will review each loan in this category to determine whether the borrower had an adequate basis for making the certification with the loan application. The previous guidance stated that borrowers lacking adequate basis would be subject to criminal penalties. The SBA guidance today significantly eases this result.

If the SBA review concludes that the borrower did not have an adequate basis for applying for the loan, that loan will now be ineligible for loan forgiveness. If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies.

If a borrower and its affiliates have obtained over $2 million in total PPP loans, it is still important to prepare documentation demonstrating that the loan was necessary. There are no clear guidelines on how to determine if the borrower had sufficient sources of funds to weather the crisis without the loans. In many cases, it will be unclear if the SBA will agree with the borrower’s conclusion on the necessity for the loan. Under the new guidance, a disagreement with the SBA on this conclusion will no longer subject the borrower to criminal penalties.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 8th, 2020

CARES Act – Retroactive changes that could create criminal liability from your PPP loan certification

The Small Business Administration (“SBA”) and Treasury Department have just published guidelines regarding qualifications for the Payroll Protection Program (“PPP”) loans. These guidelines apply retroactively to the PPP loans your small business received in April and carry the risk of investigation and criminal penalties. It is very important that you consider these new guidelines carefully.

The PPP loan program was enacted to make loan funds broadly available to qualifying businesses so that those businesses could keep their employees on the payroll.

Following enactment, the federal government repeatedly encouraged businesses to apply for (and lenders to quickly process) PPP loans. Even as late as April 15, 2020, Treasury Secretary Mnuchin announced that “we want every eligible small business to participate and get the resources they need.”  The CARES Act affirmatively eliminated existing eligibility restrictions in the SBA loan program. The Act created a presumption that loan applicants were adversely impacted by covid-19 stay-at-home orders.

That approach has changed.   

After significant press reporting and commentary on certain businesses benefiting from the PPP loans, the SBA and Treasury Secretary abruptly shifted course. On April 23, 2020, the SBA published revised guidelines for the PPP loan program (in the form of frequently asked questions (“FAQs”)).  Of particular concern is new FAQ Question 31, which states, “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?”

On April 28, the SBA issued Question 37 making it clear that this same answer applies to smaller privately owned companies as well by referring businesses owned by private companies to Question 31 for qualification. Question 31 provides that the certification each borrower makes in its application, that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant,” must be made “in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” (Emphasis ours).

Businesses that participate in the PPP loan program will be required to demonstrate to the SBA – upon the SBA’s request – the basis for the business’s certification that the loan was necessary.

The SBA announced that if the loan is found not to be “necessary,” the applicant may be subject to criminal fines of up to $1,000,000 and imprisonment for up to thirty years.

The phrase “necessary to support the on-going operations of the applicant” is not defined, but “necessary” likely means that at the time of the application the business was uncertain to have revenue or cash to cover operating expenses and needed PPP loan funds in order to continue operations while maintaining the workforce at pre-crisis levels. This determination should be made based on the information and uncertainty that existed at the time the application for the loan was submitted.

The answer to Question 31 also provides that “[a]ny borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.” The deadline has since been extended to May 14, 2020. 

Despite the ambiguity and confusion, the SBA will be auditing PPP loan recipients for their eligibility. If it is found that a business falsely claimed they needed the PPP loan and did not return it by May 14, 2020, criminal liability may apply.

We highly recommend that businesses analyze their need for the loan at the time of loan application. If that analysis concludes that the loan was necessary, the business should  prepare adequate documentation as to why their loan was “necessary,” and seek competent legal advice to ensure their eligibility for PPP loans and compliance with the SBA’s revised guidelines. If the analysis shows that the loan was not necessary, the business should return the funds by May 15 to avoid potential criminal legal exposure. 

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

May 1st, 2020

The IRS announced late Thursday that it won’t allow companies to take tax deductions for the wages and other expenses associated with forgiven Paycheck Protection Program loans.

The IRS ruling clarified an ambiguity in the Paycheck Protection Program, but also shrinks the value of the program for employers.

“This treatment prevents a double tax benefit,” the IRS said in its notice. Normally, wages are deductible expenses and forgiven debt is taxable income. But the economic-relief law included a special provision that declared this forgiven debt not to be taxable income. Since the law is silent on the question of whether normal deductions are allowed, tax experts had asked the IRS to clarify how the law works.

To deny the deductions, the IRS invoked Section 265 of the tax code, which says that deductions can’t be taken if they are tied to a specific class of tax-exempt income.

Absent a directive by the President to reverse the IRS’s decision, Congress could pass a law specifically allowing the deductions. It has done that in similar cases.

If you have any questions about PPP loans and this development, reach out to us at 303-989-7600.

April 17th, 2020

Many of our clients have seen their SBA PPP loans approved and/or funded this week. It is our understanding that the SBA is now reaching their lending limit under the program. Congress is working on increasing the funding by $250 billion. That increased funding is being held up by disagreements between the Democrats and Republicans over whether to include other items in that bill.

Now that businesses are starting to receive funding, we have seen more inquiries on the process for the forgiveness on these loans. Yesterday we provided detail on the calculation of forgiveness. Today we want to provide information on the documentation that businesses need to accumulate to provide to the banks to support the debt forgiveness.

To a large extent the SBA relied on borrowers to certify that the amounts requested on their loans were properly calculated. Some banks required further information for their records. For the loan forgiveness Congress specified in the CARES Act the documentation necessary to establish the amounts of forgiveness. Following are the items that Congress specified must be provided:

  • An application including a certification from an authorized representative of the loan recipient that states the following:
    • The documentation presented for the loan forgiveness is true and correct, and
    • The amount for which forgiveness is requested was used to retain employees, make interest payments on covered mortgage obligations, make payments on a covered rent obligation, or make covered utility payments
      • Covered for this purpose means that the debt, lease, or utilities were effective prior to February 15, 2020
  • Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the eight-week period following the loan origination and the base period for comparison. This documentation includes the following:
    • Payroll tax filings with the IRS (2019 W-2 Forms, 2019 941 Forms, 2019 940 Form)
    • State income payroll and unemployment insurance filings (Quarterly state unemployment wage reports)
    • Most businesses will need to include the payroll summary report for each payroll period in 2019 and each payroll period during the eight-week period following loan origination. If the business has not had any employee turnover, these reports might not be required. Note that this item is not listed in the CARES Act. However, the FTE calculation is an average by pay period. The quarterly tax filings required in the CARES Act are not sufficient to calculate the FTEs.
    • If the business reduced the number of employees or compensation and then reinstated the number of employees or the compensation by June 30, 2020, that business will need to also include documentation showing the reinstatement of the employees or wages.
  • Documentation to verify payments of mortgage interest, rent, utilities including:
    • Cancelled checks,
    • Payment receipts,
    • Account transcripts, or
    • Other documents
    • Note that the CARES Act states “or” but individual banks might request all these types of documentation.
  • Documentation of retirement plan contributions, and employee healthcare costs was not addressed in the legislation. However, we expect banks to require documentation of these payments as well.
  • Documentation of income for the self-employed and for partners in partnerships was not addressed in the legislation. We expect the banks to require copies of 2019 individual and partnership tax returns to support these amounts.
  • The legislation does not address documentation of the existing lease agreements, or loan agreements. We expect many banks to require copies of loan and lease agreements as part of their package to demonstrate that the payments qualify.

This list shows what is required by the legislation. Other than the items noted as not required by the CARES Act language, all this information is required in order to receive loan forgiveness. Individual banks might require additional documentation. If you gather this information now, it should speed the process of getting some or all your PPP loan forgiven.

The SBA is issuing frequent updates to its guidance on the PPP loan program. We encourage all businesses to work closely with their CPA to plan for using the loan proceeds in a way that maximizes the benefit of the loan program.

If you have any questions about these updates, reach out to us at 303-989-7600.

April 16th, 2020

Update on SBA Loan Programs Related to Coronavirus

The SBA has issued additional guidance on its loan programs related to the coronavirus pandemic. This newsletter updates the information contained in our previous newsletters.

Disaster Relief Loans

  • The SBA is limiting the advances under the disaster relief loans to $1,000 per employee up to $10,000.
  • There are reports that the SBA is capping the total they will loan to one business to $15,000 because of the large gap between requests for funding versus the congressional funding of the program.
  • The CARES Act directed the SBA to have a 3-day turnaround time for issuing advances on these loans. The SBA has been much slower in funding the advances.

Payroll Protection Program (PPP) Loans

There are indications that the SBA is close to the lending limit that Congress included in the CARES Act. Although we expect Congress to eventually extend the lending limit, there are no guarantees. It is important to obtain your PPP loan before the SBA stops the application process. We believe that if you do not apply for your loan by April 16, 2020, your loan will not be approved in time

Calculation of Loan Amounts

The PPP loans are for 2.5 months of average payroll costs. The base time period for calculating the average payroll costs is:

  • 2019 calendar year for most businesses
  • Seasonal employers can elect to use either
    • 12-week period beginning February 15, 2019, or
    • March 1, 2019 through June 30, 2019
  • If a business was not in business from February 15, 2019 through June 30, 2019, then the base period is January 1, 2020 through February 29, 2020

The average monthly payroll costs are calculated by totaling the following items and dividing by 12 if using calendar 2019 as the base. If using an alternate base period, the calculation should be adjusted accordingly.

  • Wages (use the total Medicare wages and tips from box 5 of W-2) limited to $100,000
  • Tips (included in the wage number if box 5 of W-2 is used)
  • Employer payments for health care coverage (not limited to $100,000)
  • Employer contributions to retirement plans (not limited to $100,000)
  • Payment of state and local employer taxes based on compensation (not limited to $100,000)
    • State unemployment taxes
    • Local employer occupational privilege taxes
  • If the applicant is a partnership, the income of the partners (limited to $100,000 for each partner). The income for each partner from their 2019 K-1 is
    • Line 1 ordinary business income (loss)
    • Plus Line 2 Net rental real estate income (loss)
    • Plus Line 3 Other net rental income (loss)
    • Plus Line 4 Guaranteed payments for services
    • Plus Line 11 Other income (loss)
    • Less Line 12 Section 179 deduction
    • Less Line 13 Other deductions
    • The total must be limited to $100,000
  • If the business is reported on an individual’s tax return on Schedule C, take the net income for the business on line 31 of Schedule C, limit it to $100,000, and divide by 12.

Calculation of Loan Forgiveness

Some or all the PPP loans are forgiven based on the business spending in the eight weeks following the origination of the loan. If the business has reduced its workforce measured by full time equivalent employees (FTEs) or reduced the pay of employees, the amount of loan forgiveness is reduced. The loan forgiveness on these loans is excluded from income for tax purposes.

Forgiveness Before Reductions

The amount of forgiveness before reductions is the amounts spent on the following items during the 8-week period following the loan origination date:

  •  Payroll costs which must be at least 75% of the total forgiveness. These costs include the following:
    • Gross wages paid to employees limited to $15,384 (eight weeks pay at an annualized $100,000 rate)
    • For self-employed individuals 8/52 of 2019 Schedule C net income with the product limited to $15,384. Note that the SBA adjusted the period for measuring the income to 2019.
    • For partnerships 8/52 of 2019 income allocated to the partner as described above but limited to $15,384. Note that the SBA adjusted the period for measuring the income to 2019.
    • Tips received by employees. It is unclear whether the tips count toward the $15,384 limit. Hopefully the SBA will issue more guidance.
    • Employer payments for health care coverage (not limited to $15,384)
    • Employer contributions to retirement plans (not limited to $15,384)
    • Payment of state and local taxes on the employer based on compensation (not limited to $15,384)
      • State unemployment taxes
      • Local employer occupational privilege taxes
  • Other allowable costs limited to 25% of loan forgiveness
    • Rent on leases in place before February 15, 2020
    • Interest on loans in place by February 15, 2020
    • Utilities including the following items if service began before February 15, 2020
      • Electricity
      • Gas
      • Waste
      • Telephone
      • Internet access
      • Transportation

Reductions of Loan Forgiveness

The total amount of loan forgiveness is reduced if the employer has reduced their FTEs or reduced the wages of certain employees. These reductions in loan forgiveness do not apply if the employer has restored the FTEs and wages by June 30, 2020. Note that there is some uncertainty as to whether the reductions are completely ignored or only ignored until April 26, 2020. The language of the CARES Act is unclear on this point and the SBA has not issued guidance.

Reduction in Forgiveness for Reduction in Number of Employees

If the employer has reduced the number of FTEs from the base period, the loan forgiveness is reduced proportionally by the percentage of the reduction. The employer has two options for what base period to use: February 15, 2019 through June 30, 2019, or January 1, 2020 through February 29, 2020.

The SBA has not issued guidance for how they will calculate FTEs for this purpose. Most commentators expect them to use the same 30-hour week that they use for calculations for Obamacare purposes. Under these rules, a worker is considered one full FTE if they are paid for a minimum of 30 hours. Employees who work fewer than 30 hours would count as a fractional employee. Thus, if an employer will have a reduction in total work hours they require, they would be better reducing hours for positions from 40 hours to 30 hours rather than having fewer workers. If employers have employee turnover, they should consider hiring replacements at 30-hour weeks rather than 40. However, you must also consider that this affects the employee count for other purposes such as the requirement to provide health insurance to employees.

Reduction in Forgiveness for Reduction in Salary and Wages

If the employer reduces the wages of any employees by at least 25% from the total salaries or wages during the most recent full quarter (generally the first quarter of 2020) the loan forgiveness is reduced by the amount of that reduction. This reduction does not apply to any employee who was paid at an annualized pay rate over $100,000 for any pay period in 2019. If an employer included bonuses or other increases in wages for a specific 2019 pay period, they should pay close attention to whether those extra wages increase employees over a $100,000 annualized rate for that specific pay period.

These reductions only apply if an employee is paid during the eight-week measurement period and during the prior quarter. If employees leave or join the employer after that prior quarter but before the eight-week measurement period, they are not included in the reduction. If an employee leaves employment during the eight-week measurement period, it is unclear whether the lost wages are part of the reduction.

Although tips are included in the calculation of the amount of loan and the amount of loan forgiveness, they appear to be excluded from the calculation of wages for this reduction.

Remember that any reductions of less than 25% do not count against the debt forgiveness.

If you have any questions about these updates, reach out to us at 303-989-7600.

April 15th, 2020

The SBA just issued guidance on how the PPP loans apply to self-employed. As a part of this guidance they completely changed the way the program applies to partners in partnerships. Under this guidance, the loans based on the income that partners receive from a partnership must be included in the loan at the partnership level, not at the partner level. It is our understanding that the SBA will soon exhaust the funds that Congress allotted to the PPP loan program. This means that partnerships have a very short time frame to apply for the loans to obtain the financing for their partners. In addition, if a partnership has already applied for a loan based on the wages paid to employees, it should investigate whether or not it can or should amend its loan application.

Following are the key items for these loans for partnerships:

  • Each business (including partnerships) is only eligible for one PPP loan. If the partnership has already received its PPP loan, it is too late to include the partnership income of the partners in the loan. The partnership income of the partners can still be included in the calculation of the loan forgiveness amount.
  • All the reports we have received indicate that the SBA is quickly exhausting their funding for the PPP loan program. Our expectation is that if a business applies for a loan under the program after tomorrow, it will be unlikely to receive a loan unless Congress increases funding for the program. If the partners of a partnership have already applied for PPP loans on their own behalf but the partnership has not applied, the partnership should apply for a loan immediately to maximize the chances of having the loan funded.
  • If a partnership has already applied for a loan but it has not yet funded, that partnership faces a difficult decision of whether or not to attempt to amend the loan application. If the application is not amended, the partnership loses the ability to receive funds based on the income of the partners. However, amending the application could slow the loan process enough that the program depletes its funding before the loan is granted. The partnership should consider where their loan is in the loan process as well as the what proportion of the total possible loan would be based on the partner income.
  • The SBA guidance did not include any guidance on how to calculate the income of a partner from the partnership. However, it did include details for how an individual should calculate their eligible loan amount from the Schedule C on their tax return. Based on the Schedule C guidance, the following calculation seems appropriate for each partner (losses are subtractions). Each partner’s total must be limited to $100,000. The partnership would add the amount for each of its partners to the total payroll costs based on employees.
    • Line 1 ordinary business income (loss)
    • Plus Line 2 Net rental real estate income (loss)
    • Plus Line 3 Other net rental income (loss)
    • Plus Line 4 Guaranteed payments for services
    • Plus Line 11 Other income (loss)
    • Less Line 12 Section 179 deduction
    • Less Line 13 Other deductions
    • The total must be limited to $100,000
    • Guaranteed payments for capital are unclear. Since they are economically equivalent to interest income, we have excluded them from the calculation.

We will send out a newsletter later describing the other information in the guidance as well as a more detailed analysis for calculating the amount of loan forgiveness under the program.

April 1st, 2020

WhippleWood will be hosting a presentation Friday, April 3rd at 2:30 Mountain time through Zoom to answer your questions about the CARES Act, the SBA disaster loan program, and how we can assist your small business in the application process. Below is the Zoom link:

After registering, you will receive a confirmation email containing information about joining the meeting. Please allow yourself 5-10 minutes before the beginning of the presentation to log in and resolve any technical difficulties.

If you have any questions or encounter any issues logging in, please contact Amy Eden at

During the presentation, please utilize the comments function in Zoom for questions and comments.

Thank you!

–Your friends and advisors at WhippleWood CPAs

March 30th, 2020

The latest developments on the COVID-19 pandemic as of March 30th, 2020:

  • Beware of Criminals in (Virtual) IRS Clothing. Scams already are underway to defraud individuals slated to receive payments resulting from passage of the CARES Act, the Coronavirus Aid, Relief, and Economic Security Act. Because the intention is, as much as possible, to issue payments via direct deposit and use tax information from 2019 or 2018, phishing is happening via phone calls, text messages, and e-mails. The IRS will not call, text, or email you to verify banking information for stimulus payments. The messaging includes variations such as “in order to receive your/your client’s stimulus payment via direct deposit, we need you to confirm the banking information.” The information may be sought via telephone or directing victims to click on a link to a website where they enter their banking information.

The extension period for filing returns and paying taxes also provides an opportunity for criminals to take advantage of identity theft because there’s an expanded time frame before the real taxpayer files. Criminals may file fraudulent zero balance returns if it’s determined people who don’t normally file need to file a return to receive the stimulus payment. The possibility of criminals filing returns with a low balance due also is likely so that they have a filing record that can be used to allow them access to stimulus funds. A small balance due is worth it for a larger stimulus payment.

Go to to see the Federal Trade Commission information on checks from the government.

  • As we continue to analyze the CARES Act, we have discovered some additional provisions we have not yet discussed that could be very helpful to some of our clients:
    • SBA Loans
      • Banks are encouraged to defer payments and extend the maturities on SBA loans other than those made under the Paycheck Protection Program. This covers loans made under §7(a), §7(m), and Title V.
      • The SBA will also make 6 months of principal, interest, and fee payments on these loans for the 6 months after the deferral period or for loans that aren’t deferred beginning immediately
      • These provisions also apply to new loans made through September 27, 2020.
    • Bankruptcy
      • CARES Act makes some changes easing the bankruptcy process. You may want to consult your lawyer regarding the Bankruptcy Act provisions to gauge the details of those changes.
    • Unemployment Insurance
      • CARES Act extends unemployment insurance to most individuals who were not previously covered by unemployment insurance and are unemployed because of the COVID-19 crisis.
      • Increases unemployment insurance payments by $600 per week.
      • Allows unemployment insurance payments to begin immediately without a waiting period starting with the first week of unemployment.
      • Extends unemployment insurance coverage for an additional 13 weeks
    • Recovery Rebates
      • Provides an individual credit of $1,200 (or $2,400 for married filing joint) plus $500 per qualifying child.
      • Credit to by paid out by IRS during 2020
      • Credit phases out starting at AGI of
        • $150,000 for married joint return taxpayers
        • $75,000 for individual taxpayers
        • $112,500 for head of household
      • Advance payment of credit will be made based on 2019 tax return or if that return has not been filed the 2018 tax return
      • We will need to do further research to determine whether the credit is recaptured if an advance payment is made and the individual does not qualify because of 2020 AGI. We assume that it is subject to recapture with the filing of the 2020 return.
    • Coronavirus Related Adjustments to Qualified Plans
      • Coronavirus Related Adjustments to Qualified Plans
      • Taxpayers who experience adverse financial consequences as a result of the effects of the Coronavirus on their employment can withdraw up to $100,000 from their qualified retirement plans (including IRAs)
      • The income from the distribution is spread into income over three years.
      • The individual has three years to repay the distribution and not be taxed on it.
      • The CARES Act also increases the amount of loans that can be taken from 401(k) plans.
      • The CARES Act waives the required minimum distributions from qualified plans for 2020.
    • Charitable Contributions Changes
      • An individual who does not itemize deductions can deduct up to $300 above the line for charitable contributions.
      • Individuals can deduct charitable contributions up to 100% of their AGI
      • Corporations charitable contribution limitation is adjusted to 25% of income (from 10%)
    • Employer Educational Assistance
      • Allows Educational Assistance Programs of employers to also make payments of principal or interest on qualified education loans incurred by employees for the education of the employee. As long as these payments fall under the other limitations they are not taxable to the employee.
    • AMT Credits for C Corporations
      • Allows C Corporations to receive a refund of all AMT Credits in 2018.
    • Student Loan Provisions
      • CARES Act suspends all payments due for part D and Part B student loans through September 30, 2020
      • No interest accrues on the loans during the suspension
    • Defined Benefit Plans
      • Extends the due date for all required defined benefit plan contributions (including for cash balance plans) for 2020 to January 1, 2021
      • Contribution amounts will need to be increased for interest
    • Home Mortgage Forbearance
      • A borrower with a federally backed mortgage loan who is experiencing a financial hardship due directly or indirect to the COVID-19 emergency can receive a forbearance on the loan. Loans include
        • FHA
        • Freddie Mac
        • Fannie Mae
        • VA
        • Department of Agriculture
        • Guaranteed under section 184 or 184A of the Housing and Community Development Act
        • Insured under section 255 of the National Housing Act
      • The forbearance is for up to 180 days and will be extended for an additional period up to 180 at the request of the borrower
      • During the forbearance period interest only accrues on the loan to the extent that it would accrue if the borrower made all payments on time
      • 30 day forbearance available for loans for multifamily properties with federally backed loans.
        • Two additional 30 day periods can be made at the request of the borrower
        • Owner cannot evict tenants or make additional charges to tenants for nonpayment of rent
        • Owner cannot require a tenant to vacate a dwelling unit while under the forbearance
    • Moratorium on Eviction Filings
      • The lessor of a covered residential property may not evict an tenant for nonpayment of rent or make additional charges for nonpayment of rent during the 120-day period beginning with the date of enactment (3/27/2020)
      • A covered property is on that participates in a covered housing program or has a federally backed mortgage loan

Let us know if you have any questions regarding today’s developments. We will continue to keep you up to date regularly.

March 27th, 2020

The latest developments on the COVID-19 pandemic as of March 27th, 2020:

The House passed and President Trump signed today the Coronavirus Aid, Relief, and Economic Security Act, or “CARES Act.” The $2.2 trillion bill establishes a $349 billion lending program for small businesses, increases unemployment insurance payments, and includes benefits for those who are unemployed because of the virus and normally would not qualify. Below is a summary of the landmark legislation:

  • SBA 7(a) Loan Program
    • SBA §7(a) Paycheck Protection Program (Loans to Small Businesses under Section 1102 of Act)
      • Loans must be made between February 15 and June 30, 2020.
      • Eligible recipients include:
        • Businesses
        • 501(c)(3) nonprofit organizations, veterans organizations, or Tribal businesses
        • Self-employed individuals
      • Employers are eligible if they have 500 or fewer employees
        • Number of employees can be higher based on NAICS Code of business
        • If NAICS code begins with 72, then number of employees is per physical location
        • Number of employees is not on FTE basis. Each employee is counted no matter how many hours they work.
      • Borrower Requirements
        • Borrower must certify that the uncertainty of current economic conditions makes the loan request necessary to support its ongoing operations
        • Borrower must acknowledge that the funds will be used to retain worker and maintain payroll or make mortgage payments, lease payments, and utility payments
        • Borrower can only have one loan for these purposes.
      • Maximum Loan Amount
        • 2.5 times the sum of monthly average payroll costs incurred for 1 year period before the date on which the loan is made
          • Seasonal employers can elect to use average from 12 week period beginning either February 15, 2019 or March 1, 2019.
        • Maximum loan amount is $10 million
        • Payroll costs include amounts paid up to a prorated amount of $100,000 per individual per year:
          • Salaries and wages
          • Cash tips or equivalent
          • PTO
          • Payments of group healthcare benefits
          • Payments of retirement benefits
          • State and local taxes on compensation (I presume this is only employer taxes)
          • Income of a sole proprietor or independent contractor
            • Self-employment earnings
            • Or wage, commission, income, or similar compensation (this seems a little vague)
        • Loan proceeds can be used to pay the following:
          • Payroll costs including group health care benefits
          • Interest on mortgage obligations
          • Rent
          • Utilities
          • Interest on other loan obligations incurred before February 15, 2020
      • Loans are non-recourse and do not require collateral
      • Maximum term is 10 years from the date that the borrower applies for loan forgiveness (see below)
      • Maximum interest rate is 4%
      • Payments on the loan are deferred for a minimum of 6 months and a maximum of 1 year.
      • There are no prepayment penalties on the loan
    • Loan Forgiveness (Section 1106 of CARES Act)
      • Covered period is the 8-week period beginning on the loan origination date
      • Amount forgiven is payments of the following during the covered period:
        • Payroll costs
        • Interest payments on mortgages
        • Rent
        • Utilities
      • Forgiveness is reduced by the reduction in FTE employees from a base period
        • Base period is either February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020
        • Reduction does not apply to the extent that the employer rehires FTE employees by June 30, 2020
      • Forgiveness is also reduced by any wage reductions of 25% or greater for any employee from the most recent full payroll quarter
        • Reduction does not apply to any employee who received an annualized pay greater than $100,000 for any pay period in 2019
        • Reduction does not apply to the extent that the employer eliminates the reduction in pay by June 30, 2020
      • Forgiveness cannot exceed the principal amount of loan
      • The loan forgiveness amount is excluded from the recipient’s gross income.
  • Employee Retention Credit (Section 2301 of CARES Act)
    • Employers receiving an SBA §7(a) loan are ineligible.
    • Credit applies for periods that a trade or business is fully or partially suspended during the calendar quarters due to orders from an appropriate governmental authority and during the time period when has a significant decline in gross revenue
      • The time period begins with the first calendar quarter beginning after 2019 for which gross receipts are less than 50% of the same quarter in the prior year.
      • The time period ends at the end of the first calendar quarter when the revenues return to over 80% of the same quarter for the prior year.
    • Credit is 50% of qualified wages (including qualified health plan expenses) for each employee
      • Only the first $10,000 of wages for each employee is eligible for the credit.
      • Credit is against the employer payroll taxes but any excess credit is refundable.
      • Credit is reduced by the payroll credit for required paid sick leave
  • Delay of Payment of Employer Payroll Taxes (§2302 of CARES Act)
    • Employers receive loan forgiveness on an SBA §7(a) loan are ineligible
    • Covers employer FICA taxes from date of enactment through December 31, 2020
    • Payment is deferred until
      • December 31, 2021 for 50% of the amount deferred
      • December 31, 2021 for the remaining 50%
    • If an employer directs a PEO or payroll processing firm to defer the payments that PEO or payroll processing firm is not liable for the taxes. Only the employer is liable.
  • Modifications to Net Operating Losses (§2303 of CARES Act)
    • The law allows a five-year carryback of losses generated in 2018, 2019, and 2020.
      • A taxpayer can elect not to apply the five year carryback period. The election is to be made on the 2020 return and is irrevocable
    • For years through 2020, 100% of income can be offset by NOL carryover or carrybacks
    • Income in years after 2020 can be offset by
      • 100% of NOLS generated 2016 or prior
        • If there are income amounts not offset by 2016 and prior NOLs, that income can be offset 80% by NOLs generated 2017 and later.
  • Qualified Improvement Property (§2307 of CARES Act)
    • Changes qualified improvement property to 15 year property
    • As a result qualified improvement property is eligible for bonus depreciation
    • Change is retroactive to the adoption of the 2017 tax act
    • Prior returns can be amended to claim the depreciation

Let us know if you have any questions regarding today’s developments. We will continue to keep you up to date regularly.

March 26th, 2020

In anticipation of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you should consider submitting application information to get a jump start on the process for obtaining an SBA loan under the CARES Act. An overwhelming response is expected when the program is available so anything that can be done to be ahead of the curve should be.

Since the corresponding SBA regulation under the CARES Act hasn’t been written yet, we don’t know the exact or final requirements. Once the legislation is approved, SBA will finalize regulations and requirements to access the funding. Any additional information will be collected at that time and loans will be processed in the order complete applications are received. Following is the checklist of information required to get started:

  • 2019, 2018, and 2017 Business Federal Income Tax Returns (complete copies)
    • If 2019 Business Tax Returns are not available, provide a 12/31/2019 Balance Sheet and Profit & Loss and a 2016 Business Tax Return
  • 2019, 2018, and 2017 Personal Federal Income Tax Returns for all principals who own 20% or more of the business
    • If 2019 Personal Returns are not available, provide the 2016 Return along with all W-2’s and 1099’s for 2019
  • Current Personal Financial Statement from any owner of 20% of more of the business
  • SBA Initial Information Form
  • Business Debt Schedule

If available, include the following:

  • 02/29/2020 Business Financial Statements (Balance Sheet, Year-to-Date Profit & Loss, and Aging of Accounts Receivable & Payable)
    • Internally prepared is acceptable, does not need to be CPA Compiled

WhippleWood will be hosting a webinar tomorrow, March 27th, at 2:00 Mountain time through Zoom to answer your questions about the CARES Act and the SBA disaster loan program, and how we can assist your small business in the application process. Below is the Zoom link and meeting info:

Meeting ID: 865 511 999

Password: 510602

One tap mobile


March 25th, 2020

The latest developments on the COVID-19 pandemic as of March 25th, 2020:

The Senate is expected to pass tonight The Keeping American Workers Paid and Employed Act. It would provide $377 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic. The Paycheck Protection Program would provide 8 weeks of cash-flow assistance through 100 percent federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains its payroll, then the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven, which would help workers to remain employed and affected small businesses and our economy to recover quickly from this crisis. This proposal would be retroactive to February 15, 2020 to help bring workers who may have already been laid off back onto payrolls.

  • Paycheck Protection Program
    • The bill would provide $350 billion to support loans through a new Paycheck Protection Program for:
      • Small employers with 500 employees or fewer, as well as those that meet the current Small Business Administration(SBA) size standards;
      • Self-employed individuals and “gig economy” individuals; and
      • Certain nonprofits, including 501(c)(3) organizations and 501(c)(19) veteran organizations, and tribal business concerns with under 500 employees.
    • The size of the loans would equal 250 percent of an employer’s average monthly payroll. The maximum loan amount would be $10 million.
    • Covered payroll costs include salary, wages, and payment of cash tips (up to an annual rate of pay of $100,000); employee group health care benefits, including insurance premiums; retirement contributions; and covered leave.
    • The cost of participation in the program would be reduced for both borrowers and lenders by providing fee waivers, an automatic deferment of payments for one year, and no prepayment penalties.
    • Loans would be available immediately through more than 800 existing SBA-certified lenders, including banks, credit unions, and other financial institutions, and SBA would be required to streamline the process to bring additional lenders into the program.
    • The Treasury Secretary would be authorized to expedite the addition of new lenders and make further enhancements to quickly expedite delivery of capital to small employers.
    • The maximum loan amount for SBA Express loans would be increased from $350,000 to $1 million. Express loans provide borrowers with revolving lines of credit for working capital purposes.
  • Entrepreneurial Assistance
    • The bill would provide $265 million for grants to SBA resource partners, including Small Business Development Centers and Women’s Business Centers, to offer counseling, training, and related assistance to small businesses affected by COVID-19.
    • $10 million would be provided for the Minority Business Development Agency to provide these services through Minority Business Centers and Minority Chambers of Commerce.
  • Emergency EIDL Grants
    • The bill would expand eligibility for entities suffering economic harm due to COVID-19 to access SBA’s Economic Injury Disaster Loans (EIDL), while also giving SBA more flexibility to process and disperse small dollar loans.
    • The bill would allow businesses that apply for an EIDL expedited access to capital through an Emergency Grant—an advance of $10,000 within three days to maintain payroll, provide paid sick leave, and to service other debt obligations.
    • $10 billion would be provided to support the expanded EIDL program.
  • Small Business Debt Relief
    • The bill would require SBA to pay all principal, interest, and fees on all existing SBA loan products, including 7(a), Community Advantage, 504, and Microloan programs, for six months to provide relief to small businesses negatively affected by COVID-19.
    • $17 billion would be provided to implement this section.

Let us know if you have any questions regarding today’s developments. We will continue to keep you up to date regularly.

Today Congress reached agreement on a COVID-19 relief bill, which likely will be placed into law within the next 48 hours.

Included in this bill will be $350 billion of relief for small businesses. The best information that we have is that small businesses will be eligible to apply for a 7a SBA loan through their bank that will be 90% guaranteed by the government. The goal is to turn around these loans in days. This loan is to cover payroll and other costs specific to the statute. There is a forgivable portion of the loan that will be triggered under specific conditions, but we do not know many specifics at this time. Please stand by and reply to this email with a simple “Yes, I would like to engage WhippleWood in helping me with the SBA 7a loan” if you are going to need help.

We do not know our exact process yet, but we expect to ask for a retainer to help clients with the loan. As we have hundreds of small business clients, our plan is to help every one of our clients as needed. We expect we will ramp up quickly and become experts on this process within a few days. We expect the fees for this service to be a minimum of $3,500.

Alternately, you can work with your bank directly and get the loan on your own. We can provide you tax return information and financials through our portal and will have our firm coordinators help you with access if you have trouble. Please call our main line (303-989-7600) to request help.

At a minimum, you will need your latest personal and business financials statements and tax returns along with historical information. We are here to help you in any way we can, so please let us know what we can do for you.

March 24th, 2020

The latest developments on the COVID-19 pandemic as of March 24th, 2020:

  • State tax day postponements. After the Treasury department announced its postponement of the 4/15 tax deadline, some states followed suit. Some have not. Below is a summary of whether states have adjusted their deadline to 7/15:
Alabama Yes Yes
Alaska No No
Arizona Yes Yes
Arkansas Yes Yes Individuals only
California Yes Yes
Colorado Yes Yes
Connecticut Yes Yes
Delaware Yes Yes
Florida No No Governor said FL would be “flexible”
Georgia Yes Yes
Hawaii No No
Idaho No No Both postponed to 6/15
Illinois No No
Indiana Yes Yes
Iowa Yes Yes Postponed to 7/31
Kansas Yes Yes
Kentucky Yes Yes
Louisiana Yes Yes
Maine No No
Maryland Yes Yes
Massachusetts No No
Michigan No No
Minnesota Yes Yes
Mississippi No No Both postponed to 5/15
Missouri Yes Yes
Montana Yes Yes Individuals only
Nebraska Yes Yes
Nevada No No No personal income tax
New Hampshire No No
New Jersey No No Bill awaiting governor signature
New Mexico Yes Yes Postponed to 7/25
New York Yes Yes Per Budget Director
North Carolina Yes Yes
North Dakota Yes Yes
Ohio No No State is considering
Oklahoma Yes Yes
Oregon Yes Yes Individuals only
Pennsylvania Yes Yes Individuals only
Rhode Island Yes Yes
South Carolina Yes Yes
South Dakota No No No personal income tax
Tennessee No No
Texas No No No personal income tax
Utah Yes Yes
Vermont Yes Yes
Virginia Yes No
Washington N/A N/A no income tax
West Virginia No No
Wisconsin Yes Yes
Wyoming N/A N/A no income tax
District of Columbia Yes Yes

Let us know if you have any questions regarding today’s developments. We will continue to keep you up to date regularly.

March 23rd, 2020

The latest developments on the COVID-19 pandemic as of March 23rd, 2020:

  • Sick leave credit clarification. The Families First Coronavirus Response Act takes effect on April 2 and covers all companies with up to 500 employees. The employee has to use 10 work days of unpaid leave or other PTO before the employer is eligible to take the credit for that employee. As a result, an employee is not eligible to start accruing the benefits for the credit until April 16 in most cases. Once the employer has pay periods that include days where the employee is eligible, that employer can begin reducing the payroll deposits by the amount of credit that applies to those pay periods.
  • And another. Employers will be able to offset both employer taxes and employee withholding deposits with the sick leave credit. Thus, they can offset their entire 941 liability with the credit. The IRS also announced that they will have an expedited refund process for employers who’s credit exceeds their deposit liability. They expect to process these refunds within two weeks from the filing date.
  • Beware of unemployment scams. Be sure to carefully review unemployment documents you receive from your state department of labor. The documents should list only those employees who should actually receive unemployment benefits. You have a limited time to file an appeal. In Colorado, it must be received by the state within 20 calendar days of the date the Notice of Decision was mailed. If the 20th calendar day is a Saturday, Sunday, or legal holiday, the due date of the appeal becomes the next business day.
  • Update on postponed tax payments. Friday’s announcement that the 4/15 tax deadline had been postponed to 7/15 left some unanswered questions, one of which was the affect on the previous decision to allow deferral to 7/15 of tax payments up to $1 million. Treasury clarified today that there will be no limitation on the amount of the payment that may be postponed to 7/15.
  • (From BBSI) Laying off employees? If you are worried the only option is to lay off your employees, there are actually several options to consider. See below for pros and cons to each one:
    • Work Share:  These allow you to retain your employees but reduce the number of hours they work. Employees have their lost wages made up through a portion of their weekly unemployment compensation payments. You will need to send an application to the state to get this process started.  For more information on Colorado’s workshare program, click here.
    • Furlough:  If you offer benefits, this may be one option to retain your employees because while they are on a partial or full “leave without pay,” they continue to keep their benefits. You should make special arrangements to collect benefit deductions if they pay a portion of the benefits premiums. For salaried workers, extra care should be taken to avoid violating wage and hour laws. This option may help retain talent while they are able to collect unemployment.
    • Lay Off -Job Attached:  This is a termination of employment where you expect them to return within 16 weeks from the date of termination. Employees know that once you are able to hire them back you will call them. They are, therefore, not required to provide the CO Department of labor a regular update on their job search activities. For more information on this option, click here.  (NOTE:  If you lay off more than 50 employees, you must comply with the federal WARN Act. The state threshold for employers obligated to comply with WARN is 100 employees. For more information on that law, click here.)
    • Lay off:  This is termination of employment where you do not know when they will return to work. Employees are eligible for unemployment benefits. If employees need access to the website to get the process started, send them this link: Start a Claim with CO Unemployment
  • City and County of Denver stay at home order. Mayor Michael Hancock officially issued a stay at home order today for all residents and businesses within the city and county of Denver. It begins tomorrow at 5pm and is effective through April 10th. Here is a link to the official Public Health Order.

Let us know if you have any questions regarding today’s developments. We will continue to keep you up to date regularly.

March 20th, 2020

It’s a challenge to keep up with rapid developments in the COVID-19 crisis. We will be sending email updates as often as necessary to help you stay informed and navigate the impacts to yourself and your business. Here’s the latest:

  • WhippleWood has taken steps internally to respond to COVID-19. Our team continues to remain available and working toward upcoming deadlines. We are prepared to fully utilize technology to protect our staff, clients, and their families. Our cloud-based work environment allows us to safely and securely work from home while minimizing any physical interactions. We can also honor client meetings via remote connection. We’re doing everything we can to stay healthy and practice social distancing to prevent the spread of COVID-19. We encourage all of you to do the same and please reach out via phone or email.
  • Federal tax payments can be deferred until July 15, 2020. The Internal Revenue Service and the Department of the Treasury recently released guidance on how taxpayers can defer tax payments of up to $1 million until July 15, in response to President Trump’s emergency declaration granting relief amid the coronavirus pandemic. The guidance permits all individual and other non-corporate tax filers to defer up to $1 million of federal income tax (including self-employment tax) payments that would be due on April 15, 2020, until July 15, 2020, without incurring penalties or interest. It specifically notes that the current relief does not change any other payment or filing deadlines. The guidance also provides corporate taxpayers a similar deferment of up to $10 million of federal income tax payments that would be due on April 15, 2020, until July 15, 2020, without penalties or interest. The guidance doesn’t change the April 15 filing deadline, but allows most taxpayers to avoid interest and penalties on their tax payments until July 15.
  • Highlights of Phase II coronavirus legislation. The Families First Coronavirus Response Act takes effect on April 2 and covers all companies with up to 500 employees. It requires paid sick time for employees who are unable to work or telework due to six specific reasons:
    1. The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
    2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
    3. The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis;
    4. The employee is caring for an individual who is subject to a federal, state, or local quarantine order, or an individual who has been advised to self-quarantine due to concerns related to COVID-19;
    5. The employee is caring for the employee’s son or daughter, if the child’s school or child care facility has been closed or the child’s care provider is unavailable due to COVID-19 precautions (Note: this effectively includes any employees with children, since all schools are closed); or
    6. The employee is experiencing any other substantially similar condition specified by the Department of Health and Human Services in consultation with the Department of the Treasury and the Department of Labor.

The calculation of the benefits gets a little complicated:

  • There is an initial period of 10 days of unpaid leave before the benefits begin. An employee can use any accrued vacation, personal time, or sick leave to be paid during that period.
  • The caps on the amount of pay that an employee may receive under the Act depend on whether it is the employee’s own condition or based on the employee’s caregiver status:
    • Emergency sick time relating to an employee’s own condition (see 1–3 above) is calculated based on the employee’s regular rate or applicable minimum wage, whichever is greater, but is limited to $511 per day and $5,110 total.
    • Emergency sick time relating to situations where the employee is acting as a caregiver (see 4–6 above) is calculated based on two-thirds of the employee’s regular rate or applicable minimum wage, whichever is greater, but is limited to $200 per day and $2,000 total.
  • Employees who work a part-time or irregular schedule are entitled to be paid based on the average number of hours the employee worked for the six months prior to taking emergency Family and Medical Leave Act (FMLA) time. Employees who have worked for less than six months prior to leave are entitled to the employee’s reasonable expectation at hiring of the average number of hours the employee would normally be scheduled to work.
  • Employees are covered if they have worked for the employer for at least 30 days prior to the leave.
  • The Act allows the Secretary of Labor to exclude health care providers and emergency responders (although the Act itself does not exclude these workers). In addition, it allows the Secretary of Labor to exempt small businesses with fewer than 50 employees if the required leave would jeopardize the viability of their business (the Act authorizes the exemptions but does not require them).
  • Employers with 25 or more employees are required to return any employee who has taken the emergency leave to the same or equivalent position upon their return to work.

The Act also includes refundable tax credits to reimburse employers who must provide the coverage. The credits offset the employer’s portion of Social Security taxes. In addition, employers are supposed to be reimbursed if their qualified leave wages exceed the taxes they would owe. It’s not yet clear how that works.

  • SBA disaster loans are available to small businesses. Colorado was just declared a disaster area, in addition to many other states, in response to the COVID-19 pandemic. This allows small business to apply for low interest, long-term loans through the Small Business Administration. More information, including the process to apply for the loans, can be found at
  • WhippleWood can help you and your business manage its response to the COVID-19 crisis. Please reach out to us and let us how we can assist at 303-989-7600 or email your client relationship manager.

We will keep you up-to-date regularly as the situation develops.