on the latest on the Paycheck Protection Program Loan Forgiveness. We'll also discuss some other issues, tax issues that have been kind of floating around here as well, so it's gonna be a very important webinar. Our speakers today are Beth Swanson, Mark Johnson, and Clinton Baker from Keiko Isom, very familiar to many of you who have been tuning in over the last few months as government programs and various tax benefits have been put out there by Congress and the administration. Before I turn it over to Mark to start things off, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the Q&A tab at the bottom of the screen. This webinar will also be recorded so that you may watch or re-watch on demand at your convenience. And before I do turn it over to Mark, I just would like to point out that the PPP program has really been a great benefit to most AAD members. AAD was advocating for it and advocating for various modifications throughout. We continue to advocate for it, but we do know that the majority of our distributor members receive between 197 million and 462 million in loan assistance, and it's supported greater than 16,000 jobs at AAD distributor member companies. So it's been a great program. Again, not perfect. We wish it was a little broader to encompass more of our members. And as you'll hear, probably a little more certainty in terms of where we stand today, but it certainly has been, I think, as far as government programs go, particularly a very successful program, and it's been a great benefit to AAD members. So with that, I'll turn it over to Mark, and thanks again to the KTOISM crew. Thanks, Daniel. Well, once again, we scheduled this particular update on a date that we thought was gonna be the day or two after what we thought was gonna be the latest round of frequently asked questions released from the SBA, which we thought was gonna be around the 15th, which that did not happen. So I started with a hot off the press button here that I've already disbanded. It's not hot off the press again, but there's still some good information here. In fact, the last update to the FAQs that the SBA put out was like August 11th. And the last kind of update to any regulations was August 24th. So this is still fairly recent information, but in terms of PPP, a month is sometimes a long distance between the updates. And so we're gonna give you some of what is mostly updated and let you know where we're at. We do need to, though, as a reminder, kind of start with this obligatory disclaimer that says this information is through today. This FAQ that we're waiting on could very likely come out tomorrow or the next day and answer some of the questions that we say are still unanswered. So just as you hear things pop up in the news, know that we're doing this off of information that we had through today. So hopefully our takeaway today is just to kind of understand what updates there's been over the summer, what strategies there might be in implementing, some planning techniques around them. And then is there still some timing issues of getting things timed exactly right? I think I'll back up just a second and Daniel touched on this. The title of this is PPP Update. I think as we put this together, we were thinking let's update all the coronavirus legislation. And there was a lot, the legislation was made up of several parts, some of which are still open. Some of those are closed as far as the application process and maybe they're even winding down. So we put together this real quick kind of synopsis of what were the different programs and legislation that came out that we title coronavirus legislation. The biggest one that we'll talk about today, obviously, is the PPP. When you see the red closed sign on there, it's closed for application. August 8th was when that closed. Most people that got PPP got it somewhere in late April or I'm sorry, late March, early April, thinking it was gonna be an eight week period turned into a 24 week period. And so today's, if nothing else, today's update is good because most of those people, their 24 weeks is just about over, if not already. I know that the clients that we serve, it feels like some of their 24 weeks started last week and some of them get out as far as the first week of October, but that 24 weeks is out there. So we're gonna spend a lot of time talking about PPP today. We're also gonna spend a little bit of time talking about the employer payroll tax deferral, as well as there's been one come out lately that's the employee payroll tax deferral. So that one is, both of those are still available. There's some stipulations that may or may not apply to you. So we'll talk about that a little bit. The Main Street Lending Program is one that was supposed to start when PPP finished. PPP, I'm not even sure we can say it ever finished. I guess August 8th it finally finished. And so I'm not sure what the official date of the Main Street Lending Program actually was. I don't know that we'll spend a lot of time on this today because as we looked at this, and if you've attended any of our updates in the past, the problem for dealerships with the Main Street Lending Program is that the, and Clinton, you can interrupt me here if I'm missing something. The main part with that is it's a non-forgivable loan and dealerships, because they've got so much borrowed on their floor plan, essentially took them out of the mix. There wasn't any room left to get a Main Street Lending Program to qualify for it. And even if you did, the interest rate was generally higher than what you were used to paying your manufacturer. So we did spend a whole lot of time looking at this for dealerships, just because we felt there was better uses of your money. Clinton, do you have anything on that? Because I don't think we actually have another slide about Main Street Lending Program later. Is there anything you'd add to that? Yeah, I was clicking through the PowerPoint as you were talking about, we don't have a slide for it. No, I would say everything you said was 100% accurate. The other thing I would say is that's not just dealerships. Most businesses, most industries out there did not find Main Street Lending to be very effective. In fact, if you want to read some, I find them a little bit humorous. I'll call them articles on there, maybe more opinion pieces at a number of the media outlets. Some of them were called the Main Street Lending Program, the dead on arrival program. I mean, it's like it never even got off the ground. I think it was a good idea, but it really just didn't match up with the economics of what's going on in the business world right now. So I would say we won't spend any more time on that one. Yeah, I know we were looking at some lobbying information that actually Daniel had forwarded to us a week or two ago that looked like the auto dealers might be putting something out that was trying to say, let's not count floor plan when we're looking at debt, which that could be good for dealerships as far as making them qualify more, but still, as long as the interest rate is where it's at, the floor plans that our dealerships, the interest rates that they're getting for their manufacturers are in all cases that I looked at better. Okay, so then we've got the Employee Retention Tax Credit. That's got a limited window of opportunity for people to use in the dealership world is still open. So we'll talk about that a little bit today. The EIDL loans, those are closed and most of our dealerships did not qualify for those. They were usually either too big or didn't have people in that situation that we qualified for. And then the Economic Injury Disaster Loans as well. Those were some loans that were out there that are still open. So those are kind of all the legislation that was out there. We're gonna focus on the ones that are gonna apply to most of the people on this call for the rest of today. Yeah, I think that's exactly right, Mark. What I'll do here is kind of walk us through today, maybe bouncing some questions off of you and Beth along the way or asking you guys to address particular topics. I do wanna remind everybody, I know we've had a few late people join us or a few people join us a few minutes late here. If you have questions during this presentation, just type them in the chat, both Daniel and myself are watching the Q&A session down there at the bottom and we can address them as we go if it's not in a future slide. But we spent most of the summer and late spring, early summer helping clients navigate the big Paycheck Protection Program and a couple of those other smaller ones. Obviously working with Daniel and AED to reach out to a lot of the dealers because of the complexity of those. But Mark, you mentioned both the employer payroll tax deferral, which has been around since the spring and the employee payroll tax deferral. They have the exact same name except one letter. The employee payroll tax deferral might even be more complex, honestly, than some of these other programs. So Beth, we've been getting a lot of calls from clients about this. A lot of them have heard, oh, I can not have my employees pay some tax now and have them pay it later and my employees want that. Or some of them have said, my employees don't want that. So can you give us a, just kind of start off with a quick overview and then let's dive into that program because we've had so many questions about it. Sure. So in August, the president signed an executive order directing the Department of the Treasury to take action to defer employee payroll taxes. And that was supposed to begin on September 1st. And on August 28th, the IRS issued some guidance about how to implement the deferral. So like we mentioned, there's really, there's two different deferrals. There's the one that was enacted in the CARES Act that Mark talked about a little bit a couple of slides ago. The employee side is a lot more cumbersome. So the deferral, some things to keep in mind, the deferral is at the employer's election. So you can choose to participate, you can choose not to participate, or you could choose to allow your employees on an individual basis to elect in or out. So depending on the number of employees that you have, the sophistication of your payroll system, one of those options is gonna be what you're able to do. Although we have seen overwhelmingly an all or nothing approach from the clients that we serve. So the employers that are eligible are any employer that pays wages that are subject to social security taxes. And the way that this works is that the IRS has changed the due date for withholding social security taxes on applicable wages that are paid between September 1st and the end of the year. They're delaying that due date until the first four months of 2021. So rather than delaying or forgiving that liability for employees, it's just taking the responsibility of withholding taxes on wages that are paid in 2020 and shifting it to the first four months of 21. Hey, Beth, on that one though, cause I know I've had a client ask me this one, so I'll let you say it in more legalistic terms, I suppose. We're at like September, whatever today is, September 17th. So people on the phone might've already done a payroll or two even in September. If they've already withheld the money from their employee though, that's still due, right? We can't just take the money from the employee and hold onto it and not defer it. This is for the employee to defer. So if the employee did not defer because we didn't give them that opportunity for the first 17 days, that's off the table, right? Right, so the way that the deposit rules work is that once you have withheld from your employee's paycheck you have to deposit based on the deposit schedule. So you can begin deferring employee payroll taxes at any point for future payroll dates, but if you've already withheld from your employee's paychecks, those funds need to be deposited according to your regular deposit schedule. Beth, another clarifying question. I've been asked this by several people. If they do elect to do this deferral, do they have any time between January 1st and April 30th to repay or do they have to repay a pro rata throughout that period? How does the, I don't wanna say repay, maybe how does the catch-up payment work? The catch-up is pro rata over the first four months of 2021. So you're really just taking the last eight paychecks of 2020 and doubling up on the social security portion for the first eight paychecks of 2021. Got it. One of the other questions that might be beyond the scope of this that we've got to ask is, what are the chances this gets forgiven? And I told somebody, I was like, well, the idea floated, but I'm not gonna give you gambling odds on that right now. We have sports we can bet on right now. Let's not bet on whether this is forgiven or not. Right. So did you say forgiven or repealed? Well, either one, right? Either direction. So in terms of repealing it, the IRS would have to come out and say, we retract our previous notice. We changed our mind. You don't have the option to do this. I don't think that that's particularly likely. The IRS doesn't like to go back on its word like that. So really the question is whether Congress will decide either that these payroll taxes for the last four months of 2020 are going to be forgiven. So employees don't have that payroll tax liability, or if they're going to structure it as only forgiving the liability that has been deferred. And then that's a different conversation. So there are a lot of unknowns about what Congress is going to do because the president has indicated that he wants Congress to act to forgive those taxes. So big question mark as to how that forgiveness is going to work. Absolutely. So the next slide talks about applicable wages, and it's a little bit more straightforward, but it's also got its own complications. So applicable wages, we're looking at your social security. So if we're thinking about year-end reporting, it's the W-2 box three wages that are paid to an employee on paydates between September 1st and December 31st, if those wages are less than a threshold amount based on the employer's pay schedule. So the equivalent is 104,000 per year, meaning that if you've got a biweekly pay schedule, the threshold is $4,000 per paycheck. If you're semi-monthly, it's 4,333. And those amounts are also listed in that chart there. It's an all or nothing threshold, meaning that if you pay biweekly and you have an employee whose wages for a pay period are 4,001, they have no applicable wages for that pay period. So they would not be eligible to defer any of their payroll taxes on that paycheck. And that threshold is evaluated each pay period. So rather than having it be an all or nothing up until you reach 4,001, you really are looking at each paycheck to see if there are eligible wages. So you may have an employee in this example on the slide that has normal wages of 3,500, but they receive a $750 bonus on September 15th. Their total social security wages for their paycheck is gonna be 4,250. So they don't have applicable wages on September 15th. But if their next paycheck is back to their regular amount of 3,500, that 3,500 is applicable wages for that paycheck. So it really is an administrative burden depending on how sophisticated your payroll system is to evaluate on a payroll date by payroll date basis who's got eligible wages and who doesn't. So in terms of what this means, we've got some options for employers. You can elect to not withhold the employee portion of social security tax for the last four months of 2020. And if you do elect to defer your employees withholding, those deferred taxes have to be withheld and paid pro rata over the first four months of 2021. If you don't elect to defer the withholding, you have to deposit those withholdings according to your normal deposit schedule, which I know we've already talked about. And you can elect to participate at any time. So if in October, Congress decides that all of these deferred amounts are going to be forgiven, but you have to actually defer in order to get the forgiveness, you can start deferring those payroll taxes in October rather than having missed your window because you didn't start in September. Absolutely, I mean, it's something that I think has caught a lot of attention from a lot of businesses out there, even amongst the clutter of PPP, forgiveness, Main Street Lending, something with a similar name. I think it caught a lot of people's attention because the employee is what keyed in on it. So I know a lot of people have been getting questions about that. So thank you, thank you, Beth. Yeah, Daniel asked us earlier as we were setting up for this. He asked a question that accountants don't like to answer very often. And that is, what's your recommendation? Just because this is one of those. And this is one that it's hard for me to not hesitate and say, man, this just feels too complicated in most cases. The questions that Beth didn't even cover in this one, because once you start asking questions, they just never stop. What happens if an employee isn't with you anymore starting in January and you've gotta now pay those, you don't have any paycheck to get it from? Or what happens if they cut their hours and their paycheck goes negative in some of those months? And there's just a whole lot of stuff that go wrong. And not only that, but whether it's you or whether it's your payroll company that is making those calculations, all of a sudden, these aren't calculations that are just done automatically or done globally for your entire employment base. These are decisions and analysis that you're making on an employee by employee basis. So if you've got 100 plus or 500 plus employees, all of a sudden you can just think of the nightmare it would take to look at all those paychecks individually and not only individually between now and the end of the year to determine if and how much you can defer, but then for the four months after that as well to say, all right, if and how much do we put back into there or take back out of their paycheck again? So it's just a, it feels like a big mess. If you've got a bigger heart than me, then I guess you might be willing to look at it, but it feels like a cost benefit analysis would come down on the side of cost, not benefit here. And really from an employee's perspective, it becomes really hard to justify and feel good about it. I know that Mark and I have had this conversation, which is that, sure, it's an extra $150 in an employee's pocket now, but that's an extra $150 that they don't get in the spring. So when you think about two paychecks a month, $300 adds up pretty quickly. And that's for employees that are compensated for a little bit more than probably an average service tech. Right, yep, yep, that's exactly right. So I wanna shift gears here for a second for the group and shift more to another topic that's on a lot of people's mind, and that is PPP forgiveness. And so the payroll, the employee E payroll tax deferral doesn't sound like that it's something for everyone. I think we can all admit that, but I would say for PPP for everyone on the phone here who was eligible and did qualify, my guess is almost everyone did go ahead and go through this program. It was a very effective program. Like Daniel mentioned at the top of the hour here, I missed the exact number, but I think he said when you look at the information from the SBA, the distribution industry received as much as 450, $460 million through this program. You know, when you convert that to jobs, I've heard numbers as high as 15, 16,000 jobs at distribution dealership companies that were able to be maintained during this period, which let's be honest, that's a lot of people. And that's great. That's one of the reasons the economy is still continuing the way it is. Obviously the biggest draw for PPP for a lot of people was that this is a forgivable loan. The forgiveness factor of it was such a draw. And many of the people that participate in the program, you know, they applied for this, like Mark said, as early as March. Most of them probably, honestly, in April. And then you had some that were kind of wrapping up at the end in May and June, and it closed there in early August. But the SBA did release their initial forgiveness guidance, about 10 pages worth, as you can see on the slide here, the first week of August. And they followed it up a week later with some supplemental information. But even as those rules changed, it was really good for producing content for webinars. I think that's probably why Daniel said, many of you probably have heard the three of us present before with AED. But it was also really frustrating for a lot of business owners. And so a lot of business owners and a lot of advisors like us kind of told everybody, hey, you know what, let's sit still for a second. We know we've got this 24 week period, which we'll talk about more here in a minute. But we know we have time. That being said, I would say, I'm hearing from a number of other clients now that are saying, okay, yeah, we're getting to the end of our 24 period. I'd really like this off my books by the end of the year. I'd really like this dealt with by then. The banks would like it off their books even worse. They would. I'd like to go ahead and get that taken care of. But in light of that, Mark, I'd like to have you ask you a few questions here as we walk through PPP. There's been a lot of talk about this 24 week period and as that's winding down, just share with us what are some of the highlights and questions you've fielded from clients quite a bit through this process? Yeah, some of the questions are because we might have even reversed course on some of our positioning or the way we answered questions about this early on. I know for our dealerships, particularly the ones that went over the $2 million even, we might've said, let's look at that when our eight weeks is over and if we have to give some back, we give some back and that might even make us look better. It might keep us off this list of publication that might happen and it might just have us be in better audit shape. Well, things came out after that that particularly the notification came out, everybody made the list whether they wanted to or not. That's, in fact, the numbers that Daniel gave earlier. I don't think he pulled the members at all. I think he probably just had to pull up SBA's website and look at member companies and add up the numbers. So, it was public information. And so, there's no point in staying off that list now. In fact, it's impossible, you're already on it. So, I think some things have changed. I think one of the things is, as you can see here, I think we're gonna be filling out easy forms, which we're thinking we borrowed a million, two million, even up to $10 million in some cases. I think the highest dealer number that I saw for our clients was about eight and a half million dollars. But even then, they'll most likely fill out an easy form. And that just sounds a little counterintuitive that a loan that big, we're gonna fill out an easy form. But the easy form, you're eligible for that simply if, as you can see here, the main one is, is if your employer salaries, what am I looking at here, Beth? I think I might've typed these in wrong. Essentially, the easy form was if your employment base didn't change and you didn't cut salaries, was essentially it, regardless of the size of your loan. The payment deferrals are still out there. Is it still 10 months, Beth? So, 10 months from the date of the application. So, if they applied on April 1st, basically, they have until February 1st of 21. It is 10 months from the close of the covered period. So, you've got even longer than that, especially if you're using a 24-week covered period. And one thing that I did wanna note on this is that the community banks that we work with have confirmed that the American Banking Association and the state associations have confirmed that even if your loan documents were written before the 10-month deferral period, and they say six months, the 10-month law change overrides your loan document. So, even if you did have six months in your loan document, you will get to take advantage of the full 10 months. Always makes me a little nervous when I think about people that entered into contracts and then all of a sudden the law changes. It's like, well, the law overrides the contract you agreed to. Right, it is a little alarming, especially for banks that wanna get these off of their books. Right. Beth, I'll let you just go ahead and continue on this slide then, because there's a lot of bullet points here. And for those of you on the call that don't remember, Beth is actually an attorney. Don't boo. We need our attorneys at this point. And so, Beth is gonna get through this information a lot cleaner than the accountants, who we automatically switch into interpretation and strategy. We'll let Beth go through the bullet points here of what does it actually say? And then we can get the strategy and implementation later. Sounds good. So, like Clinton and Mark said, a lot of the FAQs that we got from the SBA on forgiveness confirm what we already knew. So, most of this information is not gonna be new, but what it is, is black and white letters on a page. So, we at least have the comfort of that straightforward clarification from the SBA. So, as we talked about for the last several months, essentially, the payroll costs are calculated. If we think about accounting methods, we've really got the accrual method for the first half, and we've got, or rather, we've got the cash half for the first half of the loan, and we've got accrual for the last half. So, if you have payroll costs that were incurred before your loan originated, but paid during your cover period, so after origination, those are covered payroll costs, even if they're not related to wages that are earned during your covered period. And then, at the end of your covered period, if you've got wages that are incurred during your covered period, so employees worked those hours during your covered period, and you pay those wages after the end of your covered period but on the next regular payroll date, those are qualified payroll costs, too. We got confirmation that payroll costs are used, are based on employees' gross pay before any deductions, so simplifying at least that calculation of the payroll costs. One thing in terms of the cash compensation calculation, we're including all of tips, commissions, bonuses, and hazard pay, plus the employee's regular salary or hourly pay. This is interesting, and there's a distinction that we'll draw when we get to the forgiveness reductions, but when we're adding everything up to calculate total payroll costs, we're gonna include all of those unusual payment amounts, like commissions, bonuses, and hazard pay. The healthcare costs are going to only include the employer portion because the employee's gross wages are going to already include the employee's portion of their health insurance premiums. For employers with insurance premiums that are due after the end of their covered period, the SBA has clarified that as long as you're paying your premiums that are relating to coverage for your covered period, if you pay them on your next regular payment due date, those still count. So if my covered period ended on June 15th, but my bill to Blue Cross isn't due until June 30th, I get to count that full payment. If my bill to Blue Cross isn't due until June 30th, I get to count that full bill as part of my health costs when I'm calculating my payroll costs. And finally, the SBA clarified that you can't accelerate retirement plan contributions into the covered period. And really what this means is that if you normally don't make or don't accrue retirement plan contributions until the end of 2020, you can't decide to make a contribution during your covered period if your covered period doesn't include your normal contribution date. That said, if you have 2019 contributions that you normally make during your covered period or sometime shortly thereafter, you can certainly write that check for your prior contribution during your covered period. So SBA took away a little bit of our planning opportunity in terms of the retirement plan but did leave a bit of a door open as well. So for owner compensation, this has been a big issue and it continues to be a big issue because the SBA has different rules depending on your tax status. So for C corporation shareholders, your payroll costs are going to include the lesser of your the maximum amount for your covered period. So either $20,833 if you're using 24 weeks or $15,385 if you're using 8 weeks or your actual 2020 compensation or two and a half months worth of 2019 cash compensation. So we're taking the smallest of those three calculations. You also get to include the health insurance costs for C corp shareholders and for retirement contributions you have you get the lesser of actual 2020 retirement contributions that are made during the covered period or two and a half months worth of 2019 retirement contributions. So a bit of a complication there when you're calculating your retirement contributions for shareholders. And that's just for C corporations. I think you got slides here for the other entity types as well in case you're not you're not a C corporation don't pay attention to that one but if you are then that's the one you want to come back to. Right and unfortunately C corporations are the most straightforward. It only gets more complicated from here. For self-employed individuals, so your business reports on schedule C or F which probably won't impact a lot of people on this call but may impact many of your customers. You calculate the effective owner compensation since those individuals really don't pay themselves. It's that same threshold so it's the lesser of the amount for your covered period 2833 or 15385 or two and a half months worth of your 2019 net profits. For self-employed individuals your owner compensation does not include health insurance retirement or state tax costs. So important distinction to note there is essentially if you have the simplest tax structure possible you have the least number of eligible expenses. For general partners of partnerships your owner compensation is limited to that same threshold that we've been talking about or essentially 92% of two and a half months worth of your 2019 net earnings from self-employment. Less your 1789 deductions unreimbursed partner expenses and oil and gas deflation. So basically what that means is it's two and a half times your monthly net earnings for 2019 and then you subtract out what would have effectively been the owner portion of Social Security taxes. So really complicated for general partners but there's there is at least a straightforward answer to how to calculate it. And Beth is probably one of those also that if you know your number was bigger than what was 2019's number about $130,000. I don't remember the exact number of Social Security. If you maxed out Social Security last year you probably just need to calculate a hundred thousand you know assume that the effective of this is going to be a hundred thousand dollars divided by 24 weeks. Right. You know that that's kind of your threshold to start at anyway so. Right. Beth, one last slide here on owner comp and then I've got a question for you. But I'll let you get through this slide first. All right so like we said the owner compensation is limited depending on the tax status but when we're thinking about this regardless of your tax status owner compensation is going to be limited to $15,385 for an eight week covered period and $20,833 for a 24 week covered period. An important distinction here between your owners and your highly compensated employees the $28,333 is actually only two and a half months worth of the an effective hundred thousand dollar salary whereas for your non-owner employees they're actually going to get about you get about $46,000 of forgivable payroll costs because those non-owner employees you actually get the full 24 weeks of compensation. Another thing to note is that this owner limit is applied across all businesses that each of the owners participates in and you can allocate your cap among the different businesses that you own at your own discretion but again your total limit is going to be that $15,385 or $28,333. This was something that we had thought especially for owners that are involved in multiple businesses being able to take advantage of lots of different owner compensation equivalents across different schedule C's or different partnerships and unfortunately the SBA has caught on and has said that that's really not a viable option for us. If you own your business through an LLC you'll just follow the federal tax status rather than there being a separate set of rules for LLC members. One really great point that the SBA has given us on this guidance is that owners with less than a 5% ownership stake in a C or S corporation is not considered an owner employee you're just considered a regular employee so if you've got any minority owners maybe your key employees who have been granted a small percentage of ownership in the company those individuals as long as their ownership is less than 5% are not treated as owners. The SBA really is just limiting this these limitations to people who have control over the business. That makes me feel good that means I guessed right about four or five months ago when I gave that advice to a client. I mean I thought you were full of it I thought there was no way that the SBA was gonna say that. What if they own their ownership through an ESOP? That's a really good question so since the ESOP is the direct owner we think that the employees would not be considered owners in those cases but the SBA actually isn't super clear on it but based on the idea that only people with real control over the business are treated as owners I would expect that ESOP owners are not going to be considered owners for these purposes. Got it. Well one of the questions that came through in the chat and it's a question we've gotten we've got several times so I'm gonna give a little context to it while you guys think about the answer is do we go with eight weeks or do we go with 24 week period? You know the context I might put behind that is what Beth has described here in these last several slides is the payroll costs that are associated with being able to be, I'll put it in air quotes, the VA used to to apply for forgiveness. You know there's also a whole other set of non-payroll costs that we're gonna go through here in a minute. But back in March when the CARES Act passed and the PPP program was kicked off if you remember the way that calculation worked you were you were allowed two and a half months of payroll is how you determine your eligible amount of the loan and I'm gonna simplify it just kind of leave it at that. But then you only had eight weeks to spend that that the money to offset that for forgiveness and payroll was one of the categories and then there were these non payroll categories as well. So I think I think a lot of people had a lot of questions and it was a hot topic in our webinars here with with Daniel and AUD about what are these other expenses. Now expanding that to 24 months then or 24 weeks sorry not months, weeks. When that got expanded to 24 weeks I feel like a lot of a lot of businesses said well this isn't gonna be a problem. I mean I borrowed essentially two and a half months which is 10.24 weeks or how many weeks it is we'll call it 10, 10 and a half and now I have 24 months to spend the money so I'm not gonna have any problem but it doesn't quite work out that way because there's still some offsets in terms of headcount went down or pay went down. There still can be some haircuts to the amount that's forgiven. So so Beth and Mark kind of each of you here you know what are the things as you guys have worked through this and talked to clients you know do you see most clients leaning towards the eight weeks leaning towards the 24 weeks and then out of the question of was it possible to go 12 weeks you know like what what's been your experience on that you can share with with the group. I think real which one I think the question of is it eight or 24 probably depends case by case or it's more in general when you see it. Yeah the advice that I've been given to clients and we probably have some clients on the phone so they are on the webinar so you confirm that if you wanted to fact-check me but the advice that we've been given is that I have been given Beth you can if you contradict me maybe do it carefully in case there are some clients I don't think you contradict me though. You know at 20 most of the dealerships that that I worked with that got a PPP loan were over two million dollars in loans and the the significance of that is the whole threat or promise depending on how you look at it there's going to be some sort of audit on that number and so when it went to 24 weeks what we looked at there was if we borrowed money based on 10 weeks of payroll and now we have we gapped up to 24 weeks of payroll that we can offset on this we should go ahead and use whatever version of 24 weeks we need to get our entire loan to be consumed by payroll. So if we borrowed five million dollars wait until we had five million dollars worth of payroll and benefit expense anything that ran through if say for instance we use ADP or pay core paychecks I'll say all three of them in case I missed you know I'm not plugging any of those but we outsource our payroll anything that we ran through our outsource payroll I would wait until we consumed our entire loan with that and the reason being is because that takes half of our audit risk away because all of a sudden now that the bank has said one of the things we're gonna do or one of the things we're gonna lean on for audit advice is the third party prepare the information well the bank did or I'm sorry a payroll processor did if you did that so that takes away all of that did we spend the money on the right stuff do we have adequate documentation for the right stuff and blah blah so that part of the audit risk is gone that leaves our dealerships with over two million anyway with their only risk being out there an interpretive risk of did they need the money which is still a risk but it's an interpretation risk because after the law was written you know these things came out that said well if you had money on your floor plan available or if you had you know 30 or 40 percent equity in your business did you really not have anywhere else you could go to help you weather this storm we think that's still interpretation we'll hopefully win that argument if it comes up during audit but certainly if we spend it all on payroll it's a lot harder for somebody to argue and say Clinton you didn't need the money and Clinton says I used it to pay my employees what do you mean I didn't use the money I mean all of a sudden that argument feels a whole lot different than you said I used to pay my employees and to pay myself rent and to pay you know back some utility and all that kind of stuff it just feels like a much safer solution to go with a fully funded payroll I'll let best speak a little bit to whether you know that the way we have looked at that is that doesn't mean you have to wait till the 24 weeks although if you haven't asked for forgiveness at this point yet you're almost to your 24 weeks anyway so you know at one point we were saying you know if you get it done in 12 weeks we'll apply for your forgiveness but we were waiting for the FAQs to come out to and or a application that was completely done for us to fill out and and you know that didn't happen until here as of late so I don't know that anybody I don't know that like our firm has filed any particularly over two million dollar forgiveness applications yet if any Beth any anything you'd add to that I don't think so I think you've really covered it really well I would say that my conversations with business owners have generally been the business owner saying well we should use the eight-week period right and then we think a little bit more about the details and realize that like you said mark there are audit risks there are additional interpretations from the SBA there are a number of different factors that mean that assuming that you don't have a catastrophic event where you've got to lay off all of your employees you're probably better off accumulating as many qualified expenses over 24 weeks that you can in order to avoid the risk that any SBA audit is going to result in you having to pay back a portion of those proceeds so in the next the next couple of slides we're just gonna leave this slide up here for a second this is recorded so I know we'll let people read this on their own mark I'm gonna move us through the next few kind of quickly here but there are non payroll costs that also can be counted in the calculation of the forgiveness amount specifically things like rent utilities interest when you get to become when it becomes a related party interest then which I think is on the next slide here let's go ahead and go to that one we'll let people read read that one in the recording also when it comes to related party interest that's not eligible for forgiveness I know there there are some people that were wondering if they could structure things a certain way to get it to qualify because I really really want to spend a little bit of time Beth and mark on the on the next slide here the frequently asked questions about these non payroll costs and so Beth why don't you if you wouldn't mind again go ahead and we'll kind of walk us through here I'm sure mark and I'll probably we'll probably fire some questions that sounds good so on the non payroll cost FAQs like we said a lot of this is confirmation of stuff we already knew but maybe rephrased or given a couple of extra examples that make it make a little bit more sense so like we did for payroll costs we are going to include costs that were incurred prior to the covered period but paid during and also including costs that were incurred during the covered period and paid after the covered period and this is for utilities only so incurred during the covered period and paid after if they're paid on or before their next regular due date so you know your covered period ends on June 15th your water bill for May 15th through June 15th is due on June 30th you get to account the full water bill the alternate payroll covered period which is which has pretty limited applicability that does not apply to non-payroll costs so there's there's this limited option if you pay your employees bi-weekly or less or more frequently you can essentially coincide your covered period to your payroll period so that you don't have weird cutoffs in the middle of a pay period and the SBA has clarified that applies only to your payroll costs it doesn't apply to any of your non-payroll costs so if you elect to use that special payroll covered period you have two different covered periods to track the the one for your non-payroll costs and the one for your payroll costs that question asked yeah I think you moved on but already about the the covered period paid in the covered period paid before its normal due date we also got that question as it related to rent you know and facilities cost that sort of thing and does this same does the same rule apply about during the covered period or before the normal due date or is it just during the 24 weeks or eight weeks which period so for for rent it would just be anything that is paid during the covered period so you know if you if you get your loan dispersed on April 29th and you pay rent on May 1st your May 1st would count and your June 1st would count but anything beyond your eight weeks isn't gonna count no we had some people asking what could I prepay it and then we got back into the related party rules yeah the SBA is really specific that prepayments of rent and interest don't don't work so one other thing that they clarified is the interest on unsecured debt is not eligible for forgiveness so if we think about what they're going for here the mortgage interest is an eligible forgivable expense when we think about unsecured debt and the way that the SBA phrases this particular part of the regulations in the FAQs we think that sort of your general line of credit that is secured by all of your business assets regardless of where they're located and when you acquire them that sort of secured debt probably doesn't qualify what they're looking for is things like your floor plan financing where you've got specific assets that that loan was used to purchase and and that loan is secured by those specific assets interest on recently renewed leases or recently refinanced mortgages count as long as the underlying and original obligation was in existence on or before February 15th so if you're taking advantage of your significantly lower interest rates by refinancing your mortgage as long as the original mortgage was originated before February 15th your interest continues to count the SBA clarified finally transportation expenses unfortunately it's not good news some municipalities charge companies transportation utility fees my understanding is that that's to cover public transportation essentially so the the transportation utility fees are only those specific types of fees that are charged to businesses so things like fuel costs or freight contracts those sorts of things are not going to count as transportation expenses yeah this one was really frustrating but I think I've essentially told all the dealerships I work with just forget transportation expenses you don't have any that's yeah that's probably a fair conclusion some electricity companies some electric companies charge or have separate invoices for both electricity supply and distribution or they have different items on the invoice for supply and distribution the SBA has clarified that anything that the electric company charges you for providing you with electricity counts as a utility cost so a little bit of clarification there if your electric bill is more complicated than the average go ahead Clinton I was gonna say just one one question came in and I didn't get to see if it came in before you clarified or after you clarified interest on a line of credit so mortgage interest so in debts that debt that is secured by by real estate or by real property I should say that definitely qualifies just kind of blanket we'll call it blanket commercial loan without collateral we know does not qualify but on a line of credit if that line of credit is not not floor plan but just kind of generally this is this is secured by your receivables and other other assets that would not qualify for forgiveness correct that interest would not but floor plan would because it's specifically tied to specific you know it's tied to inventory specific assets right that's that's right okay thank you sorry mark I cut you off there I didn't know if you were moving on or that's that's all right and it gave me a chance to leave this slide up here a little longer and I'll probably talk about it anyway did you know as a reminder after we calculated everything that was eligible to be forgiven with those costs then there was a second calculation you have to run through to say is there any of that forgiveness that I just calculated now that I have to reduce because my employee count or my salaries change there are a few clarifications on this that as far as what I think about our dealerships I think most of this was good good news for us the biggest one being you know if you had first time if you did if if anybody quit during that period you know that didn't count you know if we had employees that say for instance last year they made $25,000 in base salary and they got a $25,000 bonus and they got a $25,000 Commission so they made $75,000 last year but this year you know they didn't get the bonus and they didn't get the Commission because the business was was down all they got was $25,000 well as long as their base salary didn't go down then there wasn't a reduction that we have to calculate for forgiveness so that was a that was a big one and only looking at the salary and not the commissions and bonuses you know like I said otherwise I think that this was actually pretty pretty good news anything that on this one Beth that would stand out to you that we need to remind people of that's kind of a big change no everything else really is a confirmation of what we already know so hey yeah ideals I'm not sure that any I don't I know that none of the dealership clients that we have actually got wound up qualifying for any ideal loans but basically if they did Beth what do they do with the has that been clarified what they do with the ideals and if they got that and a PPP loan yeah so the main clarification that we have here is about the EIDL advance so that's a really limited up to $10,000 that that businesses who apply for an EIDL could receive that is essentially not included as part of the EIDL however it reduces your PPP forgiveness so if you got the full maximum $10,000 EIDL advance then that $10,000 comes off of the final forgiveness number so if you had you know a $200,000 loan and a $10,000 grant your forgiveness is going to be a hundred and ninety thousand so mark on our this is our last slide of content here in the last five minutes or so as we wrap up here this first this first bullet point is one that has caused a lot of questions about two months ago and I'm not gonna lie I thought would be resolved by now so definitely spend some time on that one for us if you would yeah yeah you know and what I'll start one bullet that's not on here prior to that which makes this ability even more complicated is if you get a if you get financial statements at the end of the year that are audit or reviewed or in any fashion follow generally accepted accounting principles the Financial Accounting Standards Board us accountants love to call them FASB who issue GAAP they claim out and said hey for GAAP purposes if there's if you believe there's more likely chance than not that that's going to be forgiven even if that's not going to be forgiven until next year that's going to be income on your GAAP financials this year because we don't know the answer to the second bullet point on here though GAAP then also says tax the whole thing as far as financial statements go so the proper answer for your financial statements if you think that it's going to be forgiven next year is that if you got a two million dollar PPP loan let's say then you've got two million dollars of other income from that forgiveness and you've got 200 times say 25% or half a million dollars of deferred taxes which is a really odd thing because if it gets if it does get forgiven next year and Congress does their job we'll have two million dollars of income this year and a half million dollars of income next year you know when we reverse that those accrued taxes so so that's kind of a wonky thing out there this deductibility the reason it's important is because there's a lot of dealers on this call even that there's a lot of dealers that have 1031 year ends a lot of them have 1231 year ends but a lot of times dealers have 1031 year ends because that's when a lot of the manufacturers had year ends and so if we're filing a tax return here in about a month and a half and we have not we haven't even asked for forgiveness yet our opinion on that one is that's probably the right answer don't ask for forgiveness to 1031 because then we don't have any deductibility issues to have to file an amended return with on later because as we sit here right now today the IRS says that those deductions that you put on your forgiveness application are not going to be deductible and so you're going to have to essentially your PPP loan is going to get taxed an interesting one that I don't know that I've ever got the right answer Beth I'm probably catching you off guard on this one but you know so if I got a dealer that's got like say it's that dealer it's got seven and a half million dollars PPP loan one of the things I've been telling those guys is we want because of the whole issue about did you did you deserve to borrow the money on their applications I'm saying we're most likely going to include all the payroll all the utility everything we could put on there to show that we spent 15 million dollars during that 24 million or during that 24 week period not seven and a half just to get past that audit need I'm a little unclear as to whether or not my my non-deductible expense is seven and a half million or 15 million at that point I assume it's seven and a half million because that's all alone was and that's what they're trying to line up but that's kind of wonky too so anyway we don't know that and I don't think we're gonna know that at some point Congress whether it's probably a lame-duck session some at some point they're gonna have to address that or not I might interrupt you for a second and ask ask Daniel I know I know I'm putting him on the spot now but you know Daniel you're you're there and working with people in on the hill what are what are you seeing you think this is something that Congress is able to take up before election after election or are you hearing this is more of a 2021 item I mean I think it's still in flux here there's only five legislative days left in this or basically until that they're supposed to be in session until the election so we have a big continuing resolution to keep the government open that they have to pass next week and then they're basically supposed to be done so unless a COVID relief package kind of comes together over the next you know week or so where I think that would be a inclusion for a lot of these PPP clarifications and such I I think it's gonna be most likely a post-election sort of deal and I'm I you know I think if it gets until next year it really becomes a different situation or you know more much more uncertain or I guess it will be it's an uncertain situation now but it I don't know that I like the chances of this thing extends until next year if something you know getting done on this I think you'll see probably just more definitive guidance from SBA on this and kind of they'll give up on any real congressional changes or clarifications right but so yeah I think we're hopeful by the end of the year I know we've weighed in with a lot of business groups on particularly the deductibility issues as well as making the forgiveness process much more streamlined and efficient so you know there's bipartisan support for it we'll we'll see what ends up happening it's a as most of everyone knows a very uncertain situation right now but that's absolutely absolutely right I would say this Daniel you know we we keiko ism here I mean we always appreciate your invitation to speak and appreciate what ad is doing for for the distributor and dealership industry and also you know helping helping us and people in our profession stay employed because one thing's for sure when legislation passes in Congress accountants and lawyers get busy so I appreciate that again just thank you Daniel and I've got our contact information up here alongside yours if people have questions as members of ad you are welcome to reach out to Daniel and then he can he can help get us or other people plugged in or you can reach out to us directly and we'll loop him in as it affects if it affects a lot of dealers obviously if it only affects you sorry Daniel but we'll have to keep that confidential understand well no thank you Beth mark and Clinton I don't see any other questions I think this has been a very informative discussion here and again for those of you on this webinar you can rewatch this or watch it again or Pat watch it many times if you need to pick up on anything and certainly keep in touch ad again we'll be putting out information as soon as we get clarifications and as soon as we have some better information hopefully sooner rather than later and hopefully in the in the you know positive information hopefully as well so with that thank you everyone for joining again you can download we have a question about the copy of the presentation deck that is downloadable I believe you might get a follow-up email regarding that how you can download the presentation or rewatch it but I will that's a little out of my my purview so with that everyone yeah let's get figured out I want to put her on the spot there so with that everyone thank you so much I think you take away some and have a great day thank you

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Paycheck Protection Program

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Loan Forgiveness

tax issues

government programs

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forgivable payroll costs

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