MEMO: UPDATE – PPP LOAN
September 19, 2020
For those taxpayers that have received PPP loan proceeds, here is our latest guidance.
Pursuant to the CARES Act, some or all of your loan proceeds are eligible for forgiveness, based on payment of qualifying expenses.
Also pursuant to the CARES Act, the amount of loan forgiveness is not subject to income tax. However, it is important to know that IRS Notice 2020-32 indicates that there is no deduction for qualified expenses applied to loan forgiveness. Effectively, the PPP “qualifying expenses” are not deductible, which will cause an increase in taxable income for year 2020. To reiterate, loan forgiveness will create additional taxable income by not allowing expenses to be deducted.
Congress has discussed simplifying the loan forgiveness application. One discussion thread proposed a one-page attestation for loans below a specified threshold. The idea would be to simplify or eliminate the burden of documenting those qualifying expenses. Currently there is no definitive indication that Congress or the SBA will act to simplify or modify the requirements of the loan forgiveness application.
Loan forgiveness applications must be filed to request forgiveness. The applications will be sent to you by your Lender/Bank. The application is due within ten months after the close of the qualifying eight-week or twenty-four-week period.
Loan forgiveness approval turnaround requires approval from your lender and the SBA. We are told that the turnaround can potentially extend up to five months. Important note: pending loan forgiveness may cause your 2020 income tax returns to be placed on extension.
We expect further developments after the date of this memo. If you are planning to apply for PPP loan forgiveness, you should plan to advise us when you make your application. We need to consider how loan forgiveness impacts tax planning.
Your bank may be advising that you wait to file an application of loan forgiveness. The burden of gathering documentation may be streamlined before year end. We can only hope. Please stay in touch.