2020 Year-End Tax Guide

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THE MARCUM 2020 YEAR-END TAX GUIDE

Restaurant Recovery: An Update on PPP Loan Forgiveness During COVID-19

SAFE HARBORS There is a new safe harbor for an inability to open due to mandated closures for public safety, which may significantly impact the food and beverage industry. X The new safe harbor applies to all loan sizes. If a restaurant is unable to open its dining room due to governmental orders, it is not required to return to full employment, thereby meeting the safe harbor. If you meet this safe harbor requirement and have not reduced wages more than 25%, you can use the EZ form and must complete all sections. This safe harbor rule applies if the closure orders affected any part of your covered period and the orders were issued by one of the agencies indicated in the application instructions. X The wage safe harbor is based on wage rates excluding tips and tip pool compensation. X You have 10 months from the end of your covered period to submit for forgiveness, but you can submit at any time prior to that once the funds have been spent and assuming your bank has opened its application process. X Check with your lender to see if it has opened its application process and, if so, what the process is and what documentation is required. Not all banks have opened the application process, and some are only accepting applications for loans greater than $150,000 initially. X If you had a wage reduction greater than 25% during the covered period and apply before the end of the covered period, it will be assumed the wage reduction existed for the maximum 24-week covered period. X The lender has 60 days from the receipt of the application to submit it to the Small Business Administration (SBA). The SBA then has 90 days to review and accept or reject the application. The maximum review time should not exceed 150 days from application date. FORGIVENESS When to submit for forgiveness:

Non-payroll uses of PPP funds: X At least 60% of PPP funds must be used for payroll purposes only (wages, health care and retirement costs). X The remaining 40% may be used for rent, utilities, and mortgage interest. X Other business expenses are not allowable uses of the funds. If unable to receive full or partial forgiveness: X Profitability is not a consideration in PPP loan forgiveness; forgiveness is based on use of the funds. However, only funds used during the covered period will be eligible for forgiveness. X Unused funds turn into a loan that must be repaid with interest. Interest on these funds accrues from the beginning of the covered period. X The restrictions on use still apply to funds not forgiven. Funds must be used for payroll costs, rent, utilities, and debt interest only. There are no penalties. You will just have a loan that needs to be spent on the allowable uses at some point or be repaid if the business does not reopen. X If you transfer or rehire employees to work at another location, you may be able to include these employees in your calculation if both locations were included in the original loan application. X If you are a franchisor, and also have your own corporate locations, the franchise locations may count for the total number of stores in terms of PPP forgiveness depending on what locations were included in the original PPP loan application. X We have seen nothing in the guidance which indicates forgiveness will be reduced by insurance proceeds.