PPP Loan Forgiveness - Accrual tax payer

[BulldogTom]

Is the loan forgiveness calculation done on a cash basis or accrual?   Does the tax return method of accounting play into this at all?

For example - TP with accrual books and accrual tax return receives PPP loan of 100K.  PR costs at the end of the 8 week period under accrual are 80K, but under cash are 70K because the last payroll check date lands one day outside of the 8 week period.   Should the TP accelerate the PR to make sure it is actually paid to the employees or will the hours worked in the 8 week period be sufficient for the 75% testing threshold?

Sorry if this has been asked before and answered.

Tom
Modesto, CA

[BulldogTom]

I think I found the answer.   Must be used for expenses "incurred and paid" during the 8 week period.   

Tom
Modesto, CA

[Lee B]

Attended an online webinar several days ago, which discussed this issue.

It creates some real problems, the resolution of which will not be resolved until the Treasury/SBA releases their forgiveness guidance.

Let 's say your client writes paychecks monthly on the 5th and you received your PPP funds on the 21st of April.

Does this means that only the last 10 days of the Pay Period qualify for forgiveness.

You write your normal paychecks on June 5th.

All PPP Loan qualifying expenses must be paid no later than June 30th.

Does this mean that your wages incurred in June but not paid until July 5th don't qualify.

In this hypothetical example only 40 days of wages out of the 8 week period qualify and this client will never get anywhere near 100 % forgiveness.

Hopefully, guidance will not start the 8 week clock until the 1st day of the next pay period beginning after PPP funds are deposited in your client's bank account

and if the 8 week qualifying period extends beyond June 30th then that will be allowed.

[Lion EA]

I also heard the "incurred and paid" in a webinar or two. I also heard suggestions to switch payroll to weekly for the 8 weeks of the measurement period. I think I heard that the SBA is releasing forgiveness guidance about 15 May -- which is well into the period for many borrowers. It's hurry up and wait. Hard to advise our clients.

[BulldogTom]

13 hours ago, cbslee said:

Attended an online webinar several days ago, which discussed this issue.

It creates some real problems, the resolution of which will not be resolved until the Treasury/SBA releases their forgiveness guidance.

Let 's say your client writes paychecks monthly on the 5th and you received your PPP funds on the 21st of April.

Does this means that only the last 10 days of the Pay Period qualify for forgiveness.

You write your normal paychecks on June 5th.

All PPP Loan qualifying expenses must be paid no later than June 30th.

Does this mean that your wages incurred in June but not paid until July 5th don't qualify.

In this hypothetical example only 40 days of wages out of the 8 week period qualify and this client will never get anywhere near 100 % forgiveness.

Hopefully, guidance will not start the 8 week clock until the 1st day of the next pay period beginning after PPP funds are deposited in your client's bank account

and if the 8 week qualifying period extends beyond June 30th then that will be allowed.

That would seem reasonable, but I can't find anything online that says you can use accrued payroll costs.    Hopefully IRS will issue guidance that allows for incurred but not paid costs, but I am not comfortable with telling a client that we "hope" they can deduct the payroll that is accrued.

Tom
Modesto, CA

[JohnH]

Great points Tom.  I just started a separate thread on the subject of a special PPP disclaimer, if you (or Lion or cbslee or anyone else) might care to comment. I'm getting concerned about the risks here.

[Lee B]

Tom, the actual language in the bill is "incurred and paid"