Paycheck Protection Program: Considerations for not-for-profit loan recipients
8. Exactly just How is loan forgiveness impacted if I reduce an workersâ€™ salaries or wages, or if perhaps a member of staff is not any longer utilizing the company due to termination or voluntary resignation?
A: Per the might 22 Interim Final Rule, a reduction of a salary that is employeeâ€™s wages more than 25% can lead to a decrease in the quantity of loan forgiveness unless the wages are restored just before June 30, 2020. The date to restore wages was extended to Dec. 31, 2020 in the PPP Flexibility Act. The decrease in more than 25% needs to be paid off through the forgiveness amount that is total.
The termination or voluntary resignation of an worker will not have a direct effect on loan forgiveness. The guidance provided permits the borrower to count such a member of staff toward the full-time calculation that is equivalent exactly the same degree as prior to the reduction.
9. Just How should we record the mortgage when we have submitted our Loan Forgiveness Application and also the loan provider have not authorized it before our company is willing to issue our monetary statements?
A: Treatment is determined by exactly exactly how administration promises to record the PPP loan as described under consideration # 6. If the not-for-profit records the PPP loan as financial obligation, then a forgiveness of the financial obligation will be recorded as an increase contingency under ASC 450-30. Gain contingencies aren’t recorded when you look at the monetary statements until the gain has taken place, which in this situation could be once the loan provider or perhaps the SBA has rendered their choice on forgiveness associated with the PPP loan. In the event that loan provider or perhaps the SBA renders their choice following the stability sheet date but ahead of the issuance for the monetary statements, administration could be expected to reveal that decision but wouldn’t normally adjust the loan stability.
A refundable advance would be included in the statement of financial position with an accompanying footnote disclosure if the not-for-profit intends to record the PPP loan as a conditional contribution.
10. Are we necessary to report the mortgage on our Schedule of Expenditures of Federal Awards (SEFA)?
A: The AICPA Governmental Audit Quality Center circulated Alert No. 404, notifying borrowers that the SBA has stated that PPP loans designed to not-for-profit entities aren’t susceptible to the Uniform Guidance audit that is single and so they’re not expected to be reported for an organizationâ€™s SEFA.
11. Exactly What conformity problems can I get worried with?
A: Borrowers of a PPP loan have to make certainâ€ that isâ€œgood-faith to your loan provider and SBA in connection with significance of and underlying calculations of PPP loan quantities. The borrower must make certain representations that the loan proceeds were utilized for qualified payroll and other covered costs of the loan program upon completing the Loan Forgiveness Application or lender equivalent.
The SBA and Treasury established a safe harbor as noted in the PPP FAQ while all organizations should maintain accurate and adequate records to support the payments made from loan proceeds. Under this safe harbor, any debtor, along using its affiliates, with financing of significantly less than $2 million â€œwill be deemed to own made the desired certification concerned the need regarding the loan demand in good faith.â€
12. What reporting that is financial should we be thinking with one of these funds?
A: More guidance is required, but as mentioned, we do know for sure that for just about any part of the mortgage to be forgiven, the debtor shall have to submit the Loan Forgiveness Application (or loan provider equivalent) and paperwork to confirm expenses as outlined when you look at the Loan Forgiveness Application.
13. What impact will forgiveness regarding the PPP loan have on our Form 990 and related state return?
A: The IRS issued Notice 2020-32 to point that â€œno deduction is allowed â€¦ for a cost this is certainly otherwise deductible in the event that re payment associated with cost leads to forgiveness of a loan that is covered under the PPP. Nevertheless, as of this right time, we have been nevertheless waiting on extra guidance and clarification regarding the treatment plan for exempt companies reporting on Form 990 and their relevant state returns.
14. Whenever our organization sent applications for the PPP loan, specific information had not been available or clear. Ever since then, the Department of Treasury has released guidance, and our application for the loan may well not conform to the guidance that is new. What impact does the guidance that is new on our loan?
A: Per the PPP FAQ, then no further action is necessary if a borrower relied on interim guidance that was relevant at the time that the loan application was submitted.
15. The attention rate on PPP loans is thought to be below market price. Do we have to impute interest?
A: No, according to ASC 835-30-15-3(e), a transaction involving the borrower and a national federal government agency doesn’t need the debtor to impute interest.
To learn more concerning the Paycheck Protection Program, please visit CohnReznickâ€™s site Center for articles, on-demand webinars, and much more. For advice about your certain situation, contact your accounting expert or all of us.
Jon Brownell, CPA, Senior Manager, Not-for-Profit & Education Industry Practice