Congress Set to Appropriate More Funds to PPP Loan Program: Self-Employed and Independent Contractors Who Missed Out Should Ensure Their PPP Loan Program Applications are Ready

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Matthew L. Roberts

Matthew L. Roberts

Principal

469.998.8482
mroberts@freemanlaw.com

Mr. Roberts is a Principal of the firm. He devotes a substantial portion of his legal practice to helping his clients successfully navigate and resolve their federal tax disputes, either administratively, or, if necessary, through litigation. As a trusted advisor he has provided legal advice and counsel to hundreds of clients, including individuals and entrepreneurs, non-profits, trusts and estates, partnerships, and corporations.

Having served nearly three years as an attorney-advisor to the Chief Judge of the United States Tax Court in Washington, D.C., Mr. Roberts leverages his unique insight into government processes to offer his clients creative, innovative, and cost-effective solutions to their tax problems. In private practice, he has successfully represented clients in all phases of a federal tax dispute, including IRS audits, appeals, litigation, and collection matters. He also has significant experience representing clients in employment tax audits, voluntary disclosures, FBAR penalties and litigation, trust fund penalties, penalty abatement and waiver requests, and criminal tax matters.

Often times, Mr. Roberts has been engaged to utilize his extensive knowledge of tax controversy matters to assist clients in their transactional matters. For example, he has provided tax advice to businesses on complex tax matters related to domestic and international transactions, formations, acquisitions, dispositions, mergers, spin-offs, liquidations, and partnership divisions.

In addition to federal tax disputes, Mr. Roberts has represented clients in matters relating to white-collar crimes, estate and probate disputes, fiduciary disputes, complex contractual and settlement disputes, business disparagement and defamation claims, and other complex civil litigation matters.

Congress Set to Appropriate More Funds to PPP Loan Program

Freeman Law has written extensively on the Payroll Protection Program (“PPP”) loan program since its roll out a few weeks ago.  You can find our prior Insights here:  Payroll Protection Program SBA Loans (“PPP Loans”); Paycheck Protection Program (PPP) Information Sheet; SBA Issues Significant FAQ Guidance on Paycheck Protection Program (PPP) Loans; Flattening the Economic Curve:  The High Points of Coronavirus Tax Relief; SBA Issues Additional Interim Final Rule; Five Things Every Paycheck Protection Program Borrower Should Do After Receiving a Loan.  In addition, our detailed Compendium on the PPP Loan Program and other notable federal tax changes can be found here.

Introduction.

On March 27, 2020, the Coronavirus Aid and Economic Security Act or the CARES Act became law.  Priced at an eye-popping cost to the Government of close to $2 trillion, the legislation was aimed at stemming the economic fallout from COVID-19, particularly in light of countless stay-at-home and business closure orders across the United States.

Several provisions in the CARES Act were notable—but, perhaps none other than the Paycheck Protection Program (“PPP”), which was to be administered by the U.S. Small Business Administration (“SBA”).  Under the CARES Act, the SBA was authorized to make commitments for general business loans of up to $349 billion.

Although the PPP Loan Program received a hefty appropriation, it ran out of funds on April 16, 2020.  Incredibly, SBA-approved lenders began accepting PPP Loan Program applications for most small businesses on April 3, 2020 whereas self-employed and independent contractors were able to submit their applications a week later on April 10, 2020.  Moreover, the SBA only issued guidance to self-employed and independent contractors on April 14, 2020.  Thus, many self-employed and independent contractors were effectively left out of the PPP Loan Program, although they otherwise qualified.

As of this writing, there are whispers on Capitol Hill that Congress intends to appropriate additional funds to the PPP Loan Program.  Specifically, Treasury Secretary Steven Mnuchin stated on April 19, 2020, that the White House and Congress could potentially reach a deal this week.  However, the reported amount of appropriations that will go to the PPP Loan Program – $300 billion – will likely not be sufficient to cover small businesses’ demand for the loan proceeds. In fact, conservative estimates project that the Government would have to appropriate at least an additional $1 trillion to cover the demand.

Accordingly, self-employed individuals and independent contractors who have not submitted PPP Loan Program applications will need to act quickly if they want to have a better chance at obtaining a PPP Loan.  This Insight offers self-employed individuals and independent contractors some helpful advice in ensuring they get a faster start.

Whether the New SBA Guidance Applies to You?

As indicated above, on April 14, 2020, the SBA issued guidance for self-employed and independent contractors interested in applying for a PPP Loan.  That guidance can be found here.

Whether the new SBA guidance applies to you or not depends largely on your 2019 and 2020 federal income tax filings and whether you intend to file Schedules C.  If you are not sure, check your prior year federal income tax return filings or ask your tax professional.

But if you are still unsure whether you are a Schedule C filer, this additional guidance may help.  Generally, taxpayers file a Schedule C when they are not conducting their business operations through a separate entity, such as a corporation (C or S) or a partnership (including general, limited, etc.).  A notable exception under federal tax law is if the taxpayer is the sole owner of a limited liability company.  In these instances, the taxpayer will file a Schedule C unless an S corporation election has been made.

What Documentation Do I Need?

For those who fall squarely under the new SBA guidance, you will need to gather documentation to submit with your PPP Loan application.  This documentation includes:

  1. 2019 Schedule C. Most notably, Schedule C filers need to have a completed 2019 Schedule C, whether they have filed a 2019 federal income tax return or not.  Regrettably, many Schedule C filers may not have a 2019 Schedule C because the time to file a 2019 tax return was moved to July 15, 2020 (and if an extension is filed, October 15, 2020).  If you do not have a completed 2019 Schedule C, reach out to your tax professional to request one.  Significantly, the new SBA guidance suggests that the 2019 Schedule C does not have to be filed as of the date of the PPP Loan application—however, the guidance is explicit in indicating that a 2019 Schedule C must be provided in order to determine eligibility and loan amounts.
  2. 2019 Forms 1099. If you are self-employed or an independent contractor, it is likely you received Forms 1099-MISC with respect to your 2019 payments from third party payors.  The new SBA guidance indicates that you will be required to provide a copy of all 2019 Forms 1099-MISC with your PPP Loan application. If you did not receive a 2019 Form 1099-MISC or lost it, you could consider reaching out to the payor(s) to request additional copies.  If that does not work, you could try to substantiate any payments you received in 2019 that would be subject to 2019 Forms 1099-MISC information reporting through your 2019 bank records.
  3. Evidence of Business Operations as of February 15, 2020. Only businesses with operations as of February 15, 2020, qualify for a PPP Loan.  To prove this requirement is met, the new SBA guidance indicates that you will need to provide 2020 invoices, bank statements, or other sufficient evidence.
  4. Schedule C Filers with Employees. Finally, if you had employees in 2019, you will need to provide copies of all IRS Forms 941 and 940 for 2019.  In addition, if you paid your employees retirement or health benefits in 2019, you will need to substantiate those amounts through documentary evidence such as payroll records.

What SBA Lender Should I Use?

This is an important question and should not be overlooked.  In the last round of appropriations, many SBA-approved lenders only accepted PPP Loan applications from those with existing business relationships with the lender (e.g., a business bank account as of February 15, 2020).  This requirement – which was not part of the CARES Act – left many PPP Loan applicants frantically searching for other lenders to accept their applications.  Accordingly, make sure you have a backup lender in the event your preferred lender will not accept your PPP Loan application.  Generally, you can view the individual lender’s requirements on their website.

Business Tax Planning Lawyer

Need assistance in managing the business planning processes? Freeman Law advises clients with corporate and other entity formations and reorganizations. Restructuring entities—through conversions, mergers, and liquidations—can involve particularly complex tax and regulatory considerations. Freeman Law provides experienced tax and business counsel, helping our clients achieve their organizational goals in a tax-efficient manner. Schedule a consultation or call (214) 984-3410 to discuss your corporate structuring or business and tax planning concerns.

 

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