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When the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27, 2020, there was significant confusion regarding whether to include compensation of partners in the partnership Paycheck Protection Program (PPP) loan filing. The actual CARES Act statute indicated that partners would not be included in their partnership filings and would need to apply separately to receive PPP funding. After much feedback, and after the original partnership application date of April 3, 2020, and partner / self-employed application date of April 10, 2020, the Small Business Administration (SBA) issued guidance on April 14, 2020, allowing partner compensation up to $100,000 to be included in their partnership PPP loan applications. That guidance worked well for partnerships that had either not yet applied for their PPP loans or were able to amend their applications with their banks. However, many partnerships had already applied and received PPP funding, and their original PPP loan application did not include partner compensation. Since a borrower could only apply once for the PPP loan, those partnerships were left with no remedy.
Last night, May 13, 2020, the SBA issued additional guidance through an Interim Final Rule allowing banks to make an additional PPP loan disbursement to partnerships that did not include partner compensation in their original PPP loan application. The guidance stated that your lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed, provided that the lender’s first SBA Form 1502 Report to the SBA on the PPP loan has not been submitted. Please note again, that after your lender has submitted the initial SBA Form 1502 Report on the PPP loan, or after the date the first SBA Form 1502 was required to be submitted to SBA, the loan cannot be increased.
From the SBA guidance, it seems that your lender may have until May 22, 2020, to file the SBA Form 1502. Therefore, if you are a partnership that received PPP loan funding but did not include partner compensation, you should immediately contact your banker and request additional PPP loan funding for the originally excluded partner compensation.
If you need advice on how to proceed with PPP loan applications and calculations for partnerships, our team is available to help. To learn more, visit the COVID-19 Business Services section of our website or contact us. Also, be sure to subscribe here to get our news and alerts as they are released as we are committed to keeping you updated on how to navigate financial challenges associated with the COVID-19 pandemic.
Bert Mills, CPA, is the Managing Partner at Moore Colson. In his role, Bert sets the vision and mission of the Firm and works closely with the Firm’s leadership to drive and implement strategies.
Chris Arnone, CPA, is a Partner and Business Assurance Practice Leader at Moore Colson. Chris has over 20 years of experience providing audit, accounting and consulting services for companies in the transportation, manufacturing, distribution, staffing, private equity and venture capital industries.
Andy Starnes, CPA, is a Partner and Tax Services Practice Leader Moore Colson. Andy’s specialties include corporate tax compliance and planning, business consulting and multi-generational planning with a focus on the construction, professional services and staffing industries.
Steven Murphy, CPA, is a Partner in Moore Colson’s Tax Services Practice. He is the Practice Leader for the Transportation Industry and also serves as the Tax Practice Leader for the Retail Industry. Steven has over 20 years of experience leading tax engagements and implementing tax strategies.