Beech Tree News Network

Dear Clients & Friends,

Over the past 2 weeks, I have taken four webinars, read countless articles & spent numerous hours trying to better understand the CARES Act. Please refer to our past letters for more specific details. I would like to address what I see could be a possible problem with the Paycheck Protection Program (PPP) Loan application & in some instances make a huge difference in the amount of your loan & even more important the later forgiveness of that loan which makes it "Free Money" & it is also tax free.

I want to emphasize during my studies that no one else has mentioned this issue so this is just my thought. This issue only applies to Partnerships & Sole Proprietorships. My Very overly simple definition of a Sole Proprietorship is if your business does not file a Corporation Tax Return, Regular C Corporation or S Corporation, or a Partnership return. I think this issue or problem is caused by two things. First the name of the loan program is the "Paycheck" Protection Program & secondly is the box on the Form SBA Form 2483 (which is the application on which you apply for the loan). This box asks for your Average Monthly "Payroll". Although, if you read the instructions very closely, they state that "Payroll" includes the Sole Proprietor's or Partner's earnings, when I hear the words "Paycheck" or "Payroll” I automatically only think of W-2 wages. This box on the SBA Form 2483 has 2 parts. One is those W-2 Employee's amounts & the second part is your earnings.

For example, if you are a Sole Proprietor & make a profit of $84,000 & also have one employee that gets a W-2 for $12,000 then the amount you should put in the Box for "Average Monthly Payroll" should be $8,000. Which is the $84,000/12 months = $7,000 plus, $12,000/12 months = $1,000 for a total of $8,000. I am afraid many of us would only put $1,000 in this Box (just W-2 Employee's Portion) instead of the correct amount of $8,000.

In my example if you use the $1,000 amount instead of the $8,000, the difference in your potential loan is a $2,500 loan ($1,000 x 2.5) instead of a $20,000 loan ($8,000 x 2.5) or a $17,500 difference. HUGE!!!

Please consult with your banker/lender about this potential issue. We have contacted our banking friends at both banks here in Morgantown, Morgantown Bank & Trust and Limestone Bank, & have alerted them to this possible issue. Hopefully you read the instructions Very carefully & this is/was not an issue for you.

Again, as we stated in earlier letters, the CARES Act is very fluid which means it is being interpreted & sometimes the rules being changed as we try to work on this. We are not guaranteeing anything in this letter & it cannot be used as individual tax advice.

Good Luck & Stay SAFE!!!

Kendall R. Embry, CPA

Embry & Watts

Certified Public Accountants