Yeah, I don’t think you’d use partial quarters. It wouldn’t make sense to do that. I think you need to use full quarters.

BTW, I just reread for the umpteenth time the relevant paragraphs of the interim final rule. And the paragraphs don’t say what I really would like them to say. They don’t say “use full quarters.” So what you’d need to do is read them to say you need to compare quarters. Full quarters. In other words, you can’t compare a quarter to a month or a week or a day. That doesn’t count as a comparison of two quarters.

Extreme example. You were open on February 15, 2020 so you qualify… but you only opened for New Year’s Eve of 2019. (A special party.) So you were open within 2019 Q4 a single day. Obviously, if you compare 2019 Q4’s one day of revenues to a quarter in 2020, you won’t be able to qualify. Unless you had a 90% or 99% reduction in revenues. That doesn’t seem like what Congress intended.

So I think you’re just short. Sorry. I know that being down 24% (or 20%!) is way worse than it sounds. If a firm’s profit margin was 20%, a 24% drop in revenues means lots of red ink.

You guys might want to look at possibility of seeing whether you have two accounting methods you can use and whether one moves you from 24% to 25%. I don’t think we have any reliable guidance on this issue yet. But for forgivable spending, the SBA let borrowers basically use either cash basis or accrual basis account. And maybe they will let people do the same thing for the gross receipts.

One caution–which I mention not because it’s what you suggest or hint at–but because someone else asked this yesterday. Just to be clear, one does not fudge the revenue numbers to qualify. I.e., this isn’t like a tax return’s deductions where you can sort of sometimes rework the numbers and pick up a few more dollars of deductions. (Maybe you change the depreciation method, make a larger pension contribution, write off obsolete inventory, and so forth). If someone tweaks the gross receipts numbers to qualify for a second PPP loan, I think that’s fraud.

Again, just to be clear, I know you, William, are not in anyway contemplating that. I’m just going off on a tangent your comment makes me think of.

So are you saying that if your business was not open for the entire 4th quarter of 2019, you would use the 2020 comparisons and not use the partial 4th quarters numbers? My restaurant was only open for the last 5 weeks of the 4th quarter in 2019. Yet, we still saw saw a decrease of 8% in sales over the entire 2nd quarter 2020. Not enough to qualify if I have to use the partial 2019 quarter. When comparing the 2nd quarter of 2020 to any other quarter in 2020, we show a decrease well over 25% for that 2nd quarter. Which do I use? 2019 or 2020?
Thanks Stephen!

I think that counts. Basically, everything counts–unless Congress says otherwise.

It’s in the IFR: https://home.treasury.gov/system/files/136/PPP-IFR-Paycheck-Protection-Program-as-Amended-by-Economic-Aid-Act.pdf

Note that you can search the pdf for the word “seasonal” and get to all the guidance.

I think–but check carefully with the bank to extent possible–that if the S corp existed on 2/15/2020–he can apply for a first draw PPP loan if one wasn’t already applied for.

I also think that probably the way the payroll adjustments work if he adjusted downward the headcount from say 4 to 2 employees won’t matter matter much. E.g., they may fund 10 weeks roughly to pay 4 employees… so if $1K a week for an employee, maybe that totals $40K in PPP loans based on old staffing levels.

Then if he only employs 2 employees, he’ll be penalized 50 percent theoretically because of 50 percent reduction headcount. But it won’t actually be that bad. He’ll get to accumulate payroll over 24 weeks. Also nonpayroll spending. He might accumulate $30K in payroll over the 24 weeks maybe another $20K in other expenses. That $50K in potentially forgivable spending might be adjusted to let him only get $25K of forgiveness. But that’s still pretty good. He got a $40K loan but only needs to pay back $15K. And note that some of what that $15K was probably used for was his payroll.