sba economic injury disaster loans2020/04/04 · 5 taxresolutionacademy.com course objectives 1....

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TaxResolutionAcademy.com

SBA Economic Injury Disaster Loans & CARES Act Sec. 1110

Texas State Board of Public Accountancy Sponsor ID 010474

April 4, 2020 Edition


Copyright Notice

Any reproduction or unauthorized use of these materials, without the express written consent of 230 Media LLC is prohibited.

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Disclaimer

This presentation is intended to serve solely as an aid in continuing professional education. Due to the constantly changing nature of subject of the materials, this product is not appropriate to serve as the sole resource for any accounting opinion or return position, and must be supplemented for such purposes with other current authoritative materials.The information in this manual has been carefully compiled from sources believed to be reliable, including IRS notices, procedures, regulations, IRC, and IRM, but its accuracy is not guaranteed. In addition, 230 Media, LLC dba Tax Marketing HQ, its authors, and instructors are not engaged in rendering legal, accounting, or other professional services to readers/attendees and will not be held liable for any actions or suits based on these slides or comments made during any presentation. If legal advice or other expert assistance is required, seek the services of a competent professional under an appropriate engagement.

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CPE Credit

• Certificates of Completion will be sent within a week.

• To receive CPE credit, you must stay logged in for at least 50 minutes and you must answer the three polling questions.

• If you dialed in via phone for audio, you MUST also be online via computer or mobile device to be able to view and answer polling questions.

• Slides: “Handouts” section in GoToWebinar control panel.

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GoToWebinar Issues/Solutions

• GoToWebinar suggests closing all other applications and windows on your computer during the webinar. Failure to do so may result in the GTW app having to “fight” other applications for memory and other system resources on your computer, causing audio drops and other problems.

• If you are listening to the audio portion over the telephone, you must also be logged in to the video portion on a smartphone, tablet, or computer in order to see and respond to the polling questions. Failure to do this will result in no CPE credit.

• Also note that millions more people are now working from home, and millions of human offspring are at home instead of school, and they’re all doing who knows what on the Internet. That means Internet traffic is up over 30%, and may be causing local slowdowns in some neighborhoods. This can cause audio issues in particular.


Questions

• We welcome and encourage your questions and comments. However, for liability reasons, we cannot address specific client issues or questions beyond the scope of this presentation.

• Q&A portion will be at the end of the class. We will respond to as many questions as we can in the time allotted, but there are almost always more questions than time to answer every single one.

• Scope: Please remember that we are here to discuss Economic InjustryDisaster Loans (EIDL), NOT Paycheck Protection Program (PPP) loans. They are separate programs.

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• Enrolled Agent specializing in IRS Collections representation.

• Author of the Amazon bestseller Tax Resolution Secrets, showing consumers how to address their tax debt problems, and Tax Resolution Systems, a checklist manual for practitioners (available on Amazon).

• Built boutique tax practice from $0 to $35,000 per month in just 10 months after growing an employer’s firm from $750k per year to $3.2 million per year in just 17 months.

• Founder of TaxMarketingHQ.com, TaxLiensHQ.net, and TaxFirms.com, co-founder of software startup Prolaera, co-founder of Tax Resolution Academy®.

• Consultant to hundreds of successful tax resolution practices, from solo practitioners to firms with 30+ employees.

Jassen Bowman, EA, CTR, NTPI Fellow

Who is this wahoo?


Let‘s set some expectations…

• Scope: Please remember that we are here to discuss Economic Injustry Disaster Loans (EIDL), NOT Paycheck Protection Program (PPP) loans. They are separate programs.

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Course Objectives

1. Provide a general overview of the SBA disaster loan program.

2. Define the requirements for obtaining an Economic Injury Disaster Loan under the revised COVID-19 criteria.

3. Describe the revised EIDL application process under the current COVID-19 disaster declaration.

4. Be able to clearly articulate to your clients the nature of the $10,000 advance.

5. Briefly contrast EIDL to PPP.


What is an EIDL?

• Small Business Administration provides low interest loans to help America’s small businesses repair property damage, replace inventory, repair or replace equipment, and inject working capital into businesses that are impacted by a declared disaster.• These loans have been around for decades.

• This is a program you should be aware of for future natural disasters that may strike your area and impact your clients.

• One of my biggest failures as a tax resolution practitioner was not being aware of this program, SBA Express Bridge Loans, and FEMA programs back when I was representing clients that suffered massive losses from Hurricane Katrina and several flood and fire disasters in the western states.

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Why You Should Care

1. An inherent element of being a taxpayer representative is being an advocate for your client and helping them “fix themselves” financially in as many ways as you can.

2. Right now, you should also care because this is an opportunity to bring in NEW clients, help them with this one little thing, but keeping them as long-term clients for other services.

3. Lastly, the EIDL program provides significantly larger sums of working capital to businesses than the PPP program.



EIDL Program Details

• Max loan amount: $2 million

• Max interest rate: 3.75% for businesses, 2.75% for non-profits

• Loan term: Up to 30 years, but case-by-case

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• Loan amount formula: There is no set-in-stone formula for determining the maximum disaster loan a business can take (other than the $2 million cap). It is NOT limited to the immediate revenue loss or the bare-bones minimum required to return the business to operation.• In general, the SBA’s goal is to provide 6 months of working capital.

• This is why they ask for trailing 12 months of gross revenue and COGS. From this, they calculate gross profit percentage, multiply by gross revenue, and loan out 6 months of that.

Typical EIDL Amount = (Trailing 12 Month Gross Revenue x Gross Profit Percentage) / 2



• Loan Processing: Applications are taken directly by the SBA. Funds are dispersed directly by the SBA.

• Application Timeline: In most disaster situations, SBA strives to process loans within 21 days. Pre-COVID-19, 10-14 days was normal. Now?????

• COVID-19 Processing: CARES Act requires agencies to implement the Act within 15 days. SBA had revised online loan application up by late Sunday night.

• The New Thing: Sec. 1110(d)(3) AMOUNT.—The amount of an advance provided under this subsection shall be not more than $10,000.

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CARES Act Section 1110, Emergency EIDL Grants• The disaster period (“covered period”) is the entire calendar year of 2020.

• Eligible entities:• Businesses up to 500 employees are eligible.• Any sole proprietorship, with or without employees, is eligible (here’s looking at you, gig workers!)• A co-op with up to 500 employees.• An ESOP with up to 500 employees• A tribal small business concern with up to 500 employees.• Private non-profit organizations• Small ag co-ops

• Waives personal guarantee requirements on loans up to $200,000.

• Waives the 1-year operational requirement, but requires business existed on January 31, 2020.

• Waives the requirement that the business be able to obtain credit elsewhere.


CARES Act Section 1110, Emergency EIDL Grants• Applicants may be approved based solely on credit score.

• Waives requirement to submit a tax return or IRS transcript.

• Allows “alternative appropriate methods” to determine credit worthiness.

• Applicants can self-certify their eligibility by signing a perjury statement.

• If you have a client that is being impacted by a DIFFERENT disaster (fire, flood, tornado, hurricane, etc.), then they can/should apply for disaster assistance under that disaster declaration, also.

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About that $10,000…

• The $10,000 Advance• It is an advance against the loan application.

• It can be UP TO $10,000.• Determination formula will apparently be based on number of employees.• SBA is not being very forthcoming with details, these public comments were difficult to track down.

• If you call and speak to SBA customer service reps, they do not have answers.

Ashley Daniel Bell, Esq.SBA Regional Administrator for Region IV (Southeast)

“…10-plus employees will get you the full $10,000 advance…”

Wendell G DavisSBA Regional Administrator for Region I (Northeast)

• Reported to have stated that it will be based on number of employees on a conference call with lenders.

-Town Hall call with Rep. Lucy McBath (GA 6th CD)


About that $10,000…

• It should be advanced within 3 days of loan application (not approval, APPLICATION). But don’t forget the 15-day implementation window (today is day ____.

• Proceeds of the advance can be used for any normal allowable disaster loan purpose – NOT JUST PAYROLL.

• The “such as” provisions in the bill are just that – examples. Sick leave, payroll, inventory, materials, rent, mortgage, other debts.

• Aka, our old friend from the IRS Collections world… “Ordinary and necessary business expenses.”

• It does not need to be repaid, even if the loan application is ultimately denied.

• This advance is reduced from the forgiveness amount of a PPP loan.

• $10 billion was made available to fund these grants. I mean, “advances”.

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COVID-19 EIDL Online Short Form Application

• “EZ” version of Form 5

• Modified specific to CARES Act Sec. 1110 criteria

• It’s self-certification all the way through.



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Covered these earlier…


COVID-19 EIDL Online Short Form ApplicationThe 7 self-certifications…

Short version: No weed, no child support deadbeats, no porn, no casinos, no lobbyists, no governments, no Congresspeople.

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Cost of Goods Sold

• Over 60 questions from attendees yesterday about COGS:• “What is COGS?”

• “What expenses are included in COGS?”

• “Is COGS just all business expenses?”

• “What is COGS for a service business?”

• Beyond the scope of our topic today, but some references for you:• Page C-14 of Sch C Instructions - https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

• Form 1125-A & Instructions - https://www.irs.gov/pub/irs-access/f1125a_accessible.pdf

• Pub 334, page 27 - https://www.irs.gov/pub/irs-pdf/p334.pdf



Remember, 1-year ruleis waived, but business must have been established by January 31, 2020 →

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https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

https://www.irs.gov/pub/irs-access/f1125a_accessible.pdf

https://www.irs.gov/pub/irs-pdf/p334.pdf

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Select closest business activity. Full NAICS categories not supported.

One can only “assume” that number of employees will have significant bearing on amount of cash advance.



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SSS/DOB: They will do a credit check, and it is a hard pull. Unfreeze credit reports!



U.S. Citizens, non-citizen nationals, and qualified aliens are eligible for disaster loans. Individuals not lawfully in the US are not qualified aliens. Citizenship or legal status verification is a common element of disaster loan processing. See SBA SOP 50-30-7 (May 13, 2011), Appendix 6 for full details.

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Criminal offenses can bar somebody from receiving disaster assistance.



This is YOU. They want to know who you are, regardless if being paid a fee or not.

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Check-box grant request and direct deposit info.



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If you don’t get a confirmation number, your application was not lodged.


Terms & Conditions – Fee Policy

See handouts for complete T&C statements.

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More Fee Policy – SBA Form 159D


More Fee Policy – SBA Form 159D

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Full Loan Application Process

• There is a credit check.

• Tell clients to UNFREEZE their credit reports.

• Remember that agencies have 15 days to set up processes, so they technically don’t have to start accepting applications until then. So if you or a client have already applied for the $10k grant, it may actually be two more weeks before you see the direct deposit.

• Repayment deferral: 6 to 12 months [latest I heard was that 12 months would be default, but subject to verification]

• Update afternoon of 4/2: SBA is requesting that online EIDL applications entered before this week be refiled using the new application. This is for Sec. 1110 grant tracking, and also because of a security issue on the old online application that was removed last week.


EIDL vs PPP

EIDL PPP

Time Period Jan 1 – Dec 31 Feb 15 – June 30

Max Loan $2 million [loan amount is notlimited by payroll size]

2.5x average payroll costs for prior year or $10 million, whichever is less

Funds can be used to pay: Basically anything -- Fixed debts, payroll, rent, utilities, other bills unable to pay because of disaster.

Payroll, mortgage interest, rent, utilities, interesting on other loans.

Apply to SBA directly Regular 7a bank

Forgiveness Nay Aye – but with conditions.

Collateral Aye – loans > $25k Nay

Employee Retention Credit Aye Nay

Yes, a business may take out both an EIDL and a PPP. PPP loan must be used to pay different expenses than the EIDL.

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EIDL vs PPP

• Don’t get sucked into the trap of ignoring full EIDL loan just because PPP is forgivable.

• You *can* apply for both.

• Funds must be used for different purposes.

• EIDL loans will inherently provide access to more capital for the majority of small, “mom and pop” businesses because they aren’t limited by PPP payroll formula.

• EIDL loans cover a broader time period.

• Portions of EIDL loans used to cover payroll during the PPP covered period can be rolled into a PPP – then forgiven.

• If applied last week, please re-apply this week.


Additional Resources• Direct link to SBA EIDL short Form 5:

• https://covid19relief.sba.gov

• Non-COVID-19 disaster loan application forms (Normal Form 5):• https://www.sba.gov/disaster/apply-for-disaster-loan/index.html• Note that tax returns and other supporting form/documentation requirements are NOT waived for a normal

EIDL application – only those in relation to the coronavirus disaster declaration.

• You can read the full Small Business Act, as amended in 2013, which includes statutory provisions of 7(a) and 7(b) loan programs, here:• https://taxresolutionacademy.com/wp-content/uploads/2020/04/SmallBusinessAct_0.pdf

• Full text of the CARES Act (all 880 pages):• https://taxresolutionacademy.com/wp-content/uploads/2020/04/CARES_Act_Full_Text_2020.pdf

• CARES Act summary from Senate Committee on Small Business & Entrepreneurship:• https://taxresolutionacademy.com/wp-content/uploads/2020/04/CARES_Act_Senate_Summary.pdf

• SBA SOP 50-30-7: https://www.sba.gov/sites/default/files/SOP%2050%2030%207.pdf

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https://covid19relief.sba.gov/

https://www.sba.gov/disaster/apply-for-disaster-loan/index.html

https://taxresolutionacademy.com/wp-content/uploads/2020/04/SmallBusinessAct_0.pdf

https://taxresolutionacademy.com/wp-content/uploads/2020/04/CARES_Act_Full_Text_2020.pdf

https://taxresolutionacademy.com/wp-content/uploads/2020/04/CARES_Act_Senate_Summary.pdf

https://www.sba.gov/sites/default/files/SOP%2050%2030%207.pdf

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Paycheck Protection Program Webinar

• April 7th, presented live TWICE:• 10am Pacific (1pm Eastern)

• 1pm Pacific (4pm Eastern)

• Only $10

• 1 hr CPE for CPAs

https://register.gotowebinar.com/register/5535408133176245005


For upcoming live webinars on taxpayer

representation topics, visit:

https://TaxResolutionAcademy.com/cpe

To learn more about the benefits of Tax

Resolution Academy® membership, visit:

https://TaxResolutionAcademy.com/join

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https://register.gotowebinar.com/register/5535408133176245005

http://taxresolutionseminars.com/

https://taxresolutionacademy.com/join

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