CPA firms will be in a great position to help their small-business clients with the latest round of the Paycheck Protection Program, according to Barry Melancon, president and CEO of the American Institute of CPAs.
Speaking during a virtual meeting Tuesday of the Accountants Club of America, Melancon described some of the new wrinkles in what’s being dubbed PPP 2.0 after accountants successfully helped their clients with the initial rounds of the PPP last year.
“Our profession was on the front line and I’m very proud of how our profession has been on that front line,” said Melancon. “It’s different than our medical professionals who are on the front line dealing with our health, but they were on the front line dealing with small-business health, being the trusted advisors, helping them find business model changes and transformations to survive, maybe new opportunities to acquire distressed businesses, how to apply and use government assistance programs that were out there, and how to keep employment up.”
He noted that one of the changes in the latest $284 billion round of funding is that it is supposed to provide additional support for minority-owned businesses.
“This last round that passed right before the end of the year, it clearly has some other attributes to it, more segmentation, different rules,” said Melancon. “For instance, for the hardest-hit segments like restaurants, bars and hotels, there is greater availability of cheap loans which convert to forgiveness at three and a half times average monthly payroll.”
It will also be easier for small businesses such as restaurants to meet the revenue decline test of 25 percent in the new round of the PPP. But these businesses, which provide a critical source of employment to large numbers of workers, will need the funding to survive this year and help with the economic recovery during the pandemic.
“I'm proud of the CPA profession,” said Melancon. “I think the vast majority of CPA firms have done a phenomenal job of being sort of at the proverbial bedside of small business, helping them through this particular process and being really focused on what is necessary in the environment.”
He acknowledged that there were problems with the PPP in its initial rounds, and the AICPA had to push for more clarification on the ever-changing guidance coming out from the Small Business Administration and the Treasury Department, in some cases providing some initial guidance itself.
“Being a protector against fraud and doing the right thing, those are hallmarks of the values of the CPA profession,” said Melancon. “Our voice was clear that the government needed to be willing to accept imperfections in the program, even some abuses, in order to move quickly. It was an intense, ‘time is of the essence,’ ‘critical for survival’ issue for small business. There have been some problems in the system, which we all knew when you set up what has amounted to the largest government support program of business in our nation's history. There were critics in that process about the SBA, the Treasury Department, even some in the banking community. But the fact of the matter is, collectively, it was a remarkable job to get very much needed funds to small business from a survivability perspective.”
CPAs dealing with the PPP faced many unanswered questions, which the AICPA helped address even before the government could. “We did a lot of work trying to answer those questions,” said Melancon. “In fact, we answered some of those questions where Treasury did not, or could not, act quick enough. Some of it we might have had to alter slightly when Treasury finally got around to it. Some of it, Treasury adopted directly on our side of our original conclusions. But it was all about getting the money into those small-business hands.”
Evan Ishida is a consultant with Winding River Consulting, serving the professional services industry in the areas of leadership, culture, and agile planning. He is also a partner at Thrive at Work LLC.
A subprime-related settlement between the government and Deutsche Bank provided meaningful benefits to some U.S. consumers in need, according to a new report. But the author acknowledged that those gains could prove illusory for some consumers given the coronavirus crisis.
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The AICPA also worked to get PPP loans into the hands of small businesses by partnering with financial technology companies. “The fact of the matter is, not all 6 million businesses had banking relationships, and nonexistent banking relationships made accessing some of that money difficult,” said Melancon. “The fintech world which we've partnered with to give an option to CPA firms is another way for people to access that. We felt that was very important.”
He sees CPA firms serving as a gateway to PPP funding similarly this year. The SBA is starting to offer microloans to minority-owned businesses through community banks and other financial institutions as it begins to roll out the latest funding. Melancon doubts the PPP funding will run out quickly this year, as it did shortly after the passage of the CARES Act last year. Congress had to appropriate more funding, but $138 billion was left over when the program expired and is being used as part of this year’s funding.
More government help
Along with the PPP, another provision of the latest coronavirus relief package includes an extension of the Employee Retention Tax Credit. However, there are changes there too, making it easier for businesses to both claim the ERTC and apply for PPP loans.
“In the original CARES Act, a small business could do one or the other," said Melancon. "They could do PPP or they could do the ERTC. The law retroactively into 2020 said that you could actually do both and changed the limit, so there’s a much higher amount for the credit as long as you use different payrolls. In other words, you can't use the same payroll dollars to qualify for forgiveness and for the credit. But basically most businesses had maybe two and a half months of payroll to get to loan forgiveness, and so there were other parts of the year where they could claim that credit.”
He predicts that in the next few weeks, the IRS will issue an amended version of the Form 941, the employer’s quarterly federal tax return, to allow small businesses to retroactively claim the ERTC for 2020 and claim the credit through June 30 of this year, as long as they meet the requirements under the new law.
Melancon expects to see further aid programs coming out of the incoming Biden administration and the new Congress, but he pointed out that with the narrowly divided margins in the House and Senate, moderates are likely to dominate in Congress and there will be more of a need for bipartisanship.
The AICPA worked on a bipartisan basis to get full deductibility of PPP expenses included in the latest stimulus package. “Tax deductibility of the payments was probably the most bipartisan issue that was being debated as we wrapped up 2020,” said Melancon. “We were big advocates. That was the intent of Congress, that those monies spent with PPP would be deductible. Treasury said no. They didn't want to do that for certain reasons unless Congress reaffirmed that in the legislative process, which Congress ultimately did.”
The “CPA Caucus” of accountants in Congress is shrinking this year with the retirement last year of two representatives, including the former caucus chair, Rep. Mike Conaway, R-Texas. Another member of the caucus, Rep. Collin Peterson, D-Minnesota, lost his re-election bid in November. But one new CPA was elected this year, Rep. Victoria Spartz, R-Indiana.
“We had a net loss of two,” said Melancon. “That is unfortunate.” The caucus, while bipartisan, can exert some influence in areas such as tax reform and economic policy, but Melancon admitted it is probably too small to have a disproportionate impact.
Recruiting questions
College enrollment in accounting programs is also down this year due to the pandemic, but Melancon pointed out that is true of other degree programs as well, while students hope to return to campus in the fall semester.
“I think you could pick any major and there is going to be a decline that's probably going to play out in those numbers in the 2020-2021 university academic year,” he said. “Overall enrollments are down 14 percent. That is going to be virtually everything, and so we’re not immune to that. The fact of the matter is that we have had record numbers of majors in accounting almost every year since about 1995 and 1996. We had a small decline in the last reported numbers, but it was actually still the second highest ever because it was coming off of the all-time record.”
The AICPA has been partnering with the National Association of State Boards of Accountancy on a CPA Evolution project to attract more students to the accounting profession by emphasizing more technology skills in the curriculum and the CPA Exam. “There is a shift to a technology background as opposed to pure accounting,” said Melancon. “CPA Evolution was to address that and head that off and to have a mechanism where we adjust some of the detail that someone needs to know, depending on whether they're studying accounting, auditing. tax or technology, but still have a core that is important in that process. I think the fight for human capital in the pipeline will be very intense. High schools will be very important. The shape of CPA firms with technology is changing. The entry-level positions are changing. The traditional pyramid shape will probably continue to evolve to a ‘fat middle’ organization. And if we were sitting together here in 2024 or 2025 — hopefully physically together, not virtually together — I think we would be talking about how intense the war for experience and talent has become in all size firms.”
