Partnerships and the Paycheck Protection Program

by | Apr 23, 2020 | Cracking the Tax Code with Christy | 0 comments

Over the last two days we have received a slew of questions about how partnerships are treated in the Paycheck Protection Program. Not as much guidance exists for partnerships, but they were addressed in the Interim Final Rule issued on April 14th.  If you have a partnership and applied prior to that date and your application did not follow all of the guidelines below, do not panic.  Earlier guidance states that lenders may rely on the laws, rules, and guidance available at the time of the relevant application. 

1. Should a partnership or the partner do the loan application?  The partnership should be the loan applicant.  The partnership can include each general active partner’s self-employment income as a payroll cost, up to $100,000 annualized. 

2. If it’s based on my self-employment income as a partner, why can’t I do my own application?  The federal government is trying to streamline applications to get as many eligible loans processed as possible.  This is also because many costs, such as rent, are addressed at the partnership level. 

3. What documentation should I submit with my application to establish my self-employment income as a general partner?  The rule does not address documentation of partnership self-employment income with the same particularity as it does sole proprietors.  That said, we recommend a conservative approach and submitting the k1 that identifies each partner’s self-employment income. 

4. Should I submit my Form 1065 too?  The rule does not require it, but we recommend doing so if you have it prepared already as the Schedule C is required for sole proprietors. You are also allowed to revise your application if it has not been approved yet. 

5. If I have been approved before this rule came out, should I do anything?  Continue monitoring that the funds are spent on qualified expenses so that you can achieve as much forgiveness of the loan as possible.  If you haven’t prepared the IRS Form 1065 yet for your partnership this year, get it done.  It can help you substantiate costs during the forgiveness process and could be helpful for any audit by the SBA. 

Partnerships are not simple business entities, and you may have additional questions after reading this information.  If you have specific questions about your partnership, whether it relates to the Paycheck Protection Program, or in general, please call us for a consultation.