California wine country businesses wary of payroll forgiveness pitfalls
Illustrating one of the benefits of the stimulus, Hospice By the Bay said it saved jobs for 399 employees by securing a $ 5 million loan under the Paycheck Protection Program.
But as nonprofits and other corporate finance executives in North Bay consider how to get this loan canceled, it’s time to be careful during the COVID-19 crisis.
“We take a wait-and-see approach and we are always working on the rules,” said Denis Viscek, CFO of Hospice By the Bay, a healthcare organization in Larkspur. “We’ve been injured before, so we’re committed to taking a cautious approach.”
Under federal rules dictated by the US Small Business Administration, organizations have 10 months to apologize to banks, and Viscek wants the federal government to be clear with its procedures and rules. Otherwise, a bad financial decision can put a business – even if it operates as a non-profit organization – in a world of pain.
Fortunately, Boyd Meacham, owner of Petaluma’s Spurgeon Painting, said he relies on the current surge in construction jobs to carry it through year round with his 18 employees.
“I am awaiting advice from my accountant,” he said.
Kevin Bradley of W. Bradley Electric at Novato also entrusts his CFO with deciding how to advance the forgiveness program on the $ 5 million he borrowed.
“It’s like they put the program in place and then put all these conditions on,” he said of the $ 660 billion PPP program.
A steady stream of construction jobs has also helped Bradley keep his 274 employees busy, but he’s wondering how long the consistency will last.
“My concern is what the first quarter of next year will look like. I think January through April will be revealing. It’s a fluid situation, ”he said.
In its wait mode, the Internal Revenue Service warned commercial borrowers to forgo 1% interest loans that they could not use the loan as a business expense. The practice is what is commonly referred to as double soaking. The IRS waived tax deductions for wages and rent paid with repayable P3 loans labeled as a federal grant instead.
The denial is written in Tax Notice 2020-32: “No deduction is permitted under the Internal Revenue Code for an expense that is otherwise deductible if payment of the expense results in the delivery of a covered loan . “
The US Treasury Department has entertained the idea of ”general pardon,” but the legal maneuver would literally take an act of Congress.
And there is a challenge given the political climate in the country.
The Small Business Expense Protection Act 2020 was introduced in May to fight denial. It amends the $ 2.2 trillion CARES law passed in March to provide tax deductions for ordinary business expenses on a company’s return.
“We are in the middle of a pandemic. We think the government made a lot of claims and then threw water on the fire, ”said Jon Dal Poggetto, Santa Rosa accountant. “I don’t see this as a double deduction. It does not seem quite correct. Why not payroll costs? It’s like any ordinary expense in business code. “
Nonetheless, Dal Poggetto would advise more businesses to go ahead and apply for forgiveness of their loan, as he believes most of them would come out ahead in their tax returns because the amount of the loan is due. loan should be greater than the tax benefits. Simply put, the accountant would like the federal government to bring clarity and flexibility to businesses. For example, would business expenses land in the year the loan was received or canceled?
More than 4,100 federally funded low interest loans totaling $ 1.4 billion have been processed in Sonoma, Napa, Marin, Mendocino and Solano counties. From there, companies pledged to retain at least three quarters of their staff. The SBA had calculated 169,532 jobs saved from this company.
Out of 1,800 loans processed, Exchange Bank completed and submitted 35 loan cancellation requests to their borrowers.
The Santa Rosa Community Bank recently opened a portal to test the program’s application process with 10 clients. He also hosted a webinar last Friday to iron out issues on the topic and attracted 500 clients to attend.
Customers are pouring in with their questions, but no evidence of a flood of applications is expected at this time as extensions have been granted, executive vice president Michael Sullivan told The Business Journal.
It’s all new territory.
“We’ve never experienced anything like this before,” Sullivan said. “This program is far from perfect, but it has kept a lot of businesses afloat.”
Other local financial institutions such as the Bank of Marin and the Summit State Bank declined to comment on the matter.
Business after business has come forward to extol the saving grace of the PPP program. But already, many are those who admit that a second round of tax assistance is necessary.
Tom Sullivan, vice president of small business policy for the US Chamber of Commerce, strongly agrees. The largest business advocacy organization in the country put pressure on Congress for more help and business-friendly rules related to the loan program.
He calls the IRS tax code requirement “insanity.”
“The idea that the federal government has freed up capital so that small businesses can survive should tell you something,” he said.
Sullivan supports the Recent Goldman Sachs survey shows that 84% of the country’s borrowers have already taken out their loans – almost half admitting “they need a second round” to survive.
He cited a terrible prediction from the survey that 40% to 66% of business closures would become permanent.
Although his home base is across the continent, Sullivan particularly sympathized with the challenges associated with California’s business climate.
“How can you expect a small business owner dealing with COVID, avoiding wildfires, bypassing power outages and getting their kids online to school, then have to complete a bunch of paperwork? ? It makes absolutely no sense, ”he said.