Although the Paycheck Protection Program (PPP) saw a quick drain of the funds that were initially allocated to it, Congress has refreshed PPP funds and small business owners continue to be encouraged to apply. One of the inevitable repercussions of participating in any government program is the possibility that your activity will be audited. Recently, the Treasury Secretary announced that all PPP loans over $2 million would be fully audited, but also alluded to the fact that all PPP loans would receive some level of government review. Those who receive PPP loans should ensure that they are aware of the forgiveness terms and have proper documentation to support their position. A COVID-19 business survival consultant can help business owners navigate the oftentimes confusing terms of the PPP and other COVID-19 business and tax programs.
The Paycheck Protection Program was established as a part of the government’s response to the COVID-19 pandemic. Under the loan plan, businesses with fewer than 500 employees may seek a loan for up to 2.5 times the amount of their average monthly payroll expense. If at least 75 percent of the funds are used to pay payroll expenses, the business owner can apply to have the loan forgiven.
Secretary of the Treasury, Steve Mnuchin told reporters last week that the government was aware and disappointed in larger, publicly-traded companies that took PPP loan proceeds. Mnuchin indicated that it was not Congress’s intent to have companies with sufficient liquidity to receive more proceeds. As a result, Mnuchin announced that any business that received PPP loan proceeds in excess of $2 million will be subject to audit upon requesting loan forgiveness.
In later interviews with the press, Mnuchin indicated that all businesses that seek PPP loan forgiveness will be reviewed in some respect. It is immediately unknown the extent to which small businesses will be audited upon seeking PPP loan forgiveness. Although we are not aware of the full scope of the impending audits, we do know the requirements of PPP loan forgiveness.
One of the requirements of the PPP is that businesses seeking forgiveness not reduce the size of their workforce. If a business does reduce headcount, whether that is by voluntary or involuntary attrition, the amount of the PPP that may be forgiven is reduced accordingly. Practically speaking, proving that a PPP loan should be forgiven will be a documentation exercise. Business owners will need to take great care to ensure that their records are up-to-date prior to seeking PPP loan forgiveness.
If you have received a PPP loan and intend to seek forgiveness, we now know that you will be audited regardless of your size. We still do not know the scope of the audit, but documentation will nonetheless need to be provided to prove that you qualify for loan forgiveness.
Documentation exercises that produce sufficient support to survive the scrutiny of a government audit can be difficult. Working with a COVID-19 business survival consultant will help ensure that your documentation and evidence that will support your PPP loan forgiveness claim is sufficient to sustain government scrutiny.
Regardless of your particular business needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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