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An example of 7(a) perversion

Summary:
Let's say that you have 700 employees in the prior year, earning an average of K. If you continue that between now and the end of Q2, Title I of the 2020 CARES Act will give you nothing. BUT if you fire at last 201 of those employees, and THEN apply for a million 7(a) loan, the entire million will be forgiven at the end of Q2 as long as you keep enough of the 499 employees that remain.  Moreover, you pay no business tax on the forgiven amount. You are eligible for the million loan because your prior year payroll was over million.  You are eligible for million forgiveness because your payroll still exceeds million. In effect, the Federal government has paid you K per employee, tax free, to fire people pursuant to a provision called "KEEPING

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Let's say that you have 700 employees in the prior year, earning an average of $50K.

If you continue that between now and the end of Q2, Title I of the 2020 CARES Act will give you nothing.

BUT if you fire at last 201 of those employees, and THEN apply for a $10 million 7(a) loan, the entire $10 million will be forgiven at the end of Q2 as long as you keep enough of the 499 employees that remain.  Moreover, you pay no business tax on the forgiven amount.

You are eligible for the $10 million loan because your prior year payroll was over $10 million.  You are eligible for $10 million forgiveness because your payroll still exceeds $10 million.

In effect, the Federal government has paid you $50K per employee, tax free, to fire people pursuant to a provision called "KEEPING AMERICAN WORKERS PAID AND EMPLOYED ACT."

The SBA could fix this problem when it issues guidance around the CARES Act by setting a time frame sufficiently far in the past that it cannot be manipulated.

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