PPP and first year s-corp

[jw-rogers]

Have 3 clients who were LLC's filing schedule C in 2019 who are S-corps in 2020.

All received PPP based on schedule C numbers (banks were fine with this). For payroll costs and owner replacement during the 8-week PPP period, should these be ideally run via payroll or done via the 8/52 owner replacement? 

One is running payroll and two are just getting going (oh small practice life). Thoughts and friendly advice is appreciated.

[sjrcpa]

I'd ask the banks. 😄 (I know this is useless).

As far as  I know there is no answer to this not very unusual situation. Maybe SBA will cover it in forthcoming guidance.

[jw-rogers]

I have calls out to three bankers and will post what I hear back. 

For the two who haven't run payroll, I'm considering putting them on payroll as they would be and then running payroll at the 8/52 basis the loan was calculated on.

For the client on payroll, I was going to run payroll as planned. 

I'm going with the assumption that payroll/compensation needs to happen during the 8-week period as it would normally.

Appreciate your response!

[qbteachmt]

You asked Twice. Please keep it to just this One Place. Thanks.

"For the two who haven't run payroll, I'm considering putting them on payroll"

You have to do this, as S corps. The Loans don't override IRS requirements.

[abctax55]

@qbteachmt

 I don't think the OP is suggesting no payroll at all for the year.  The loan forgiveness period is just for the 8 weeks subsequent to funding.  The SBA and/or the lending bank is the one in charge of what documentation is required to obtain forgiveness - the IRS isn't involved in this (other than stating that the payments aren't deductible... but stay tuned for further action on that).

[TaxGuyBill]

I agree, why on earth are they not on payroll?  It is already mid-May.  If they want to be an S-corporation, they need to act like a corporation, which includes payroll.

[jw-rogers]

I spoke with 2/3 bankers and received a range of responses. @TaxGuyBill is correct that payroll should have been run - I don't do payroll and refer - but refer doesn't mean it gets done.

I saw an email from Big Bank USA and they are asking for 941's from Q1 and Q2. One bank referred to question 38 as a general guide:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pd...

My plan for these folks is to set-up and run payroll and submit as they should have in Q1. 

Appreciate the comments and support.