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The Small Business Administration (SBA) released new PPP FAQs on August 4, 2020.  We wish they were more robust.  One of the issues covered is offers to rehire workers and how that works with the potential reduction in FTE.

SITUATION

Marathon Bible College (MBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

We were talking to MBC’s Accounting Team about filing for Paycheck Protection Program loan forgiveness and they expressed a concern that they had eliminated two positions in the “covered period” that were on staff at February 15, 2020.  This would, potentially, affect their percentage of PPP loan forgiveness.

“What are our options, if any?” They asked.

“Well, if you rehire – or offer to rehire – those positions on or before December 31, 2020, you can exclude those positions when calculating your reduction in FTE for purposes of PPP loan forgiveness.”

“Okay,” they said, “how does that work?”

“According to the recently-released FAQs on PPP loan forgiveness, you must be able to document – in good faith – that 1) you were unable to rehire the specific workers because they refused an offer of rehire and, 2) you were unable to hire similarly qualified individuals for those positions by 12/31/20.”

“Uh-huh.  How do we document that?”

We said.  “Great question.  The SBA says that the written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual would work for documentation.  Remember, also, that if you have an employee who rejects an offer of rehire, you are required to notify your state unemployment insurance office of that rejection within 30 days.”

RULES

From SBA (New) Frequently Asked Questions (FAQs) on PPP Loan Forgiveness – August 4, 2020:

Question: Will a borrower be subject to a reduction to its forgiveness amount due to a reduction in FTE employees during the Covered Period if the borrower offered to rehire one or more laid off employees but the employees declined?

Answer: In calculating its loan forgiveness amount, a borrower may exclude any reduction in FTE employees if the borrower is able to document in good faith the following: (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020 and (2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020. Borrowers are required to inform the applicable state unemployment insurance office of any employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer. The documents that borrowers should maintain to show compliance with this exemption include the written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual.

 BOTTOM LINE

  • Nearly everyone is thinking about PPP loan forgiveness these days.
  • We are beginning to hear from lenders that they will open the forgiveness application process very soon.
  • One of the issues Bible colleges and seminaries are looking at is the reduction in FTE and the exclusions in the rules for some eliminated positions.
  • In addition to this “FTE rehire” exclusion, there are others – more to follow.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

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