The SBA provided clarifying documentation on January 19th in the form of FAQs regarding calculating the maximum second draw amount, definition of gross receipts for for-profit and not-for-profit organizations and documentation required. Highlights include:
- Definition of gross receipts for non-profits is defined as the following:
- Gross amount received as contributions, gifts, grants, and similar amounts without reduction for the expenses of raising and collecting such amounts.
- Gross amount received as dues or assessments from members or affiliated organizations without reduction for expenses attributable to the receipt of such amounts.
- Gross sales or receipts from business activities (including business activities unrelated to the purpose for which the organization qualifies for exemption, the net income or loss from which may be required to be reported on Form 990-T).
- Gross amount received from the sale of assets without reduction for cost or other basis and expenses of sale.
- Gross amount received as investment income, such as interest, dividends, rents, and royalties.
- Gross receipts decline test is based on calendar quarter comparisons OR a calendar year comparison of 2020 to 2019.
- *Exception* – Fiscal year filers may use their annual tax return for the annual gross receipts decline documentation ONLY if their fiscal year contains all of the second, third and fourth quarters of the calendar year, so February, March, or April fiscal year start dates.
- Documentation required to demonstrate meeting the gross receipts decline test include:
- Quarterly financial statements – if not audited, the borrower must sign and date the first page of the financial statement and initial all other pages, attesting to their accuracy.
- Quarterly or monthly bank statements showing deposits from the relevant quarters.
- If using the annual method – IRS income tax filings for calendar year 2019 and 2020. If 2020 has not yet been filed, the return must fill out the relevant tax forms and sign and date the return attesting that the values entered will be the same numbers filed.
- Examples of amounts required to compute gross receipts based on entity tax return type:
- For self-employed individuals other than farmers and ranchers (IRS Form 1040 Schedule C): sum of line 4 and line 75.
- For self-employed farmers and ranchers (IRS Form 1040 Schedule F): sum of lines 1b and 9.
- For partnerships (IRS Form 1065): sum of lines 2 and 8, minus line 6.
- For S-Corporations (IRS Form 1120-S): sum of lines 2 and 6, minus line 4.
- For C-Corporations (IRS Form 1120): sum of lines 2 and 11, minus the sum of lines 8 and 9.
- For nonprofit organizations (IRS Form 990): the sum of lines 6b(i), 6b(ii), 7b(i), 7b(ii), 8b, 9b, 10b, and 12 (column (A)) of Part VIII.
- For nonprofit organizations (IRS Form 990-EZ): sum of lines 5b, 6c, 7b, and 9 of Part I.
- Schedule F filers can use gross income (line 9) to calculate owner compensation replacement when applying for a PPP loan. If the Schedule F filer has employees, the owner compensation replacement calculation will be gross income less the employee payroll costs. The employee payroll costs will be factored into the maximum loan calculation separately.
- If a borrower used the preceding 12 months to calculate their first PPP loan, instead of using 2019 payroll costs, they CANNOT use the same calculation for their second draw loan. They must use either calendar year 2019, calendar year 2020, or the 12 months preceding the request for the second draw to calculate their maximum loan amount.
