PPP LOAN FRAUD ALERT – BE SMART!!!!
Your mistakes may not impact you today but will two years down the road!
The recent launch of the Second Draw PPP Loan funding carries with it a key requirement for documentation:
“For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements. “
The problem with the law is there is no specific guidance. What is relevant information? Is it tax returns, quarterly CPA prepared financial statements, or is it internally prepared financial statements?
My clients have all of the above, however each may indicate completely different results. Why? Tax Returns can be prepared on a different basis of accounting than financial statements, and internal financial statements may be incorrect or misleading for many reasons..( sales and purchase cut-off, cash basis collections vs accrual, % of completion estimates, bookkeeping errors, timing issues).
ADVICE FROM THE TRENCHES
BE CONSISTENT AND ETHICAL!!!!!!!!!!!
Select the method of comparison that most clearly reflects the results of operations of your business.
Don’t choose one comparison because you like the results, nor compare two different types of information (financial statements to tax returns) that could be inconsistent with each other.
Ethically, I believe you should you use the financial information that you rely upon to base your business decisions. The government may disagree on the information chosen, but at least you have an argument that you used good faith when obtaining the loan.
Samantha is a partner at Howard, Kittle and Company CPAs, LLP. She manages the accounting staff, overseeing all facets of each tax and accounting engagement, as well as working extensively in litigation support and tax controversy engagements. Samantha earned her M.S. in Taxation from Golden Gate University.