Finally – Clarity on Schedule F Farmers for PPP
It is clarity, but likely for many farmers not what they wanted to see. If you show a loss on line 34 of Schedule F you do not qualify for any loan based on your earnings. You would qualify for a loan for any employee payroll costs.
If you are a farm partnership, it is a little more complicated. First, you are allowed all of your employee payroll costs. You then get to add in all of the partner’s self-employment income calculated as follows:
- Total SE income reported on line 14a of Schedule K/K-1, reduced by:
- Any Section 179 expense deduction claimed, unreimbursed partnership expenses claimed and depletion claimed on oil and gas properties (likely does not apply to most farmers);
- Then multiplied by 92.35% to arrive at net SE earnings.
If this amount is over $100,000, then reduce to $100,000. Multiplying by 92.35% for Schedule F farmers appears not to be required but may be required in a future announcement since the same calculations usually apply to Schedule C and Schedule F filers on Schedule SE.
Many farm partnerships have a manager managed LLC structure that allows for a reduction in self-employment tax. Even though this income is considered to be ordinary income, it appears that none of that income will qualify for PPP loans.
S or C corporations are only allowed to use taxable Medicare wages & tips from line 5c of Form 941. These wages are subject to FICA and Medicare taxes.
Therefore if this guidance applies to Form 943 files, commodity wages will not be allowed for calculating total employee payroll costs. If you received an original PPP loan using commodity wages, you may have to revise your loan. Further guidance is needed for Form 943 filers.
We finally have more clarity for farmers in determining the amount to apply for.
However, we also are hearing that the SBA may “audit” the requirements that taxpayers certified both that there was economic uncertainty AND that the farmer needed the funds in order to keep employees on the payroll and paid during the period February 15, 2020 through June 30, 2020. The flak from Ruth Chris and Shake Shack and others of similar size is causing the SBA to be more diligent in reviewing these loans.
If a farmer has plenty of liquidity and was not in a shut-down situation, then being able to certify the second part may be difficult. This may be especially true for grain farmers and others that are currently planting crops; have sufficient liquidity or lines-of-credit; have 80-85% of their crop insured and have the ability to pay their employees.
For other farmers such as dairy, livestock, produce, etc. it is likely much easier to meet this hurdle.
The key is to document thoroughly in your records why you needed the loan and do it now and not after the end of the 8 week forgiveness period.
Guidance will be needed to fully explain what this may mean, but care should be taken in applying for the loan.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Is the loss for 2020 or 2019