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Potential changes to PPP loan forgiveness 5/28/2020

As part of their 10,000 Small Businesses Program, Goldman Sachs provided the following information to their alumni from Capitol Hill about potential changes in PPP legislation. While there is no guarantee that these will be adopted, these are big potential changes that all borrowers need to be aware of.

No specific action can be taken yet, but borrowers should review their plans to see whether there is anything specific they should be thinking about at this stage.   

Today, the House is expected to pass legislation that will make a series of important modifications to PPP, including:

-Allowing borrowers 24 weeks to use their loan funds, instead of the current 8-week allocation
-Expanding the allowable uses for loans to be forgiven by lowering the existing requirement to spend 75% of loan funds on payroll
-Lengthening the loan term from 2 years to 5 years
-Allowing borrowers to use loan funds to purchase PPE for employees and to pay for adaptive investments needed to reopen safely
-Allowing loan recipients to defer payroll taxes

We expect the Senate to either pass the House legislation as is or pass similar legislation next week, meaning the modifications are on a path to be signed into law over the next 2-3 weeks.

The modifications are an important first step, but there are additional policy priorities that need to be addressed in the next legislative package, which we anticipate Congress voting on in late June or July

 

Important Update on Borrower’s PPP “Need” Justification – 5/13/20 2:35 PM

There was an important SBA update today in the form of an additional FAQ regarding the SBA’s potential review of a borrower’s “good faith” certification covering the necessity of their loan request.

FAQ #46 (see below) states that: “any borrower that….. received PPP loans with an original principal amount of less than $2 million, will be deemed to have made the required certification concerning the necessity of the loan request in good faith”. This means that they will accept the certification for the loan necessity without the apparent review of whether there was an actual need for the loan as long as the PPP loan principal was under $2 million.

This should remove some of the concern, but it goes on to say: “ [The] SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules…”.

The phrase “and other PPP loans as appropriate” is a little vague and would seem to be reserving the possibility that any loan can be reviewed or audited.

 

News regarding Banks and the “Need” for Forgiveness – 5/12 1:20 PM

People are concerned about demonstrating their “need” for the PPP Loan they applied for, and here are two things of current interest.

People are concerned about demonstrating their “need” for the PPP Loan they applied for, and here are two things of current interest.

  1. We just heard from a member that their bank has told them they are going to audit the application they submitted for their PPP Loan.  This may be a one-of, or perhaps a straw in the wind for how banks are going to react.
  2. See the article Handling Concerns About PPP Loan Necessity for a suggested approach to the issue.

 

Bill to make PPP Funded Expenses Deductible - 5/7

AICPA Bill to make PPP Funded Expenses Deductible.  This just came across my desk from the AICPA, who are lobbying for legislation.

Legislation introduced in the Senate on Tuesday would overrule an IRS notice and clarify that ordinary expenses funded by Paycheck Protection Program (PPP) loans are deductible by taxpayers. The bill, the Small Business Expenses Protection Act of 2020, S. 3612, is currently in the Senate Finance Committee and is supported by the AICPA.

The PPP was created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136. Under Section 1106(b) of the CARES Act, an eligible recipient of a covered loan can receive forgiveness of indebtedness on the loan in an amount equal to the sum of payments made for the following expenses during the eight-week covered period beginning on the covered loan’s origination date: (1) payroll costs; (2) any payment of interest on any covered mortgage obligation; (3) any payment on any covered rent obligation; and (4) any covered utility payment. Section 1106(i) excludes from gross income any amount forgiven under the PPP.

The IRS last Thursday issued Notice 2020-32, which says that taxpayers receiving loans through the PPP are not permitted to deduct normally deductible expenses to the extent the expenses were reimbursed by a PPP loan that was then forgiven. The IRS notice reasoned that Sec. 265(a)(1) prohibits an otherwise allowable deduction under any provision of the Code, including Secs. 162 and 163, for the amount of any payment of an eligible Section 1106 expense to the extent of the resulting covered loan forgiveness (up to the aggregate amount forgiven) because that payment is allocable to tax-exempt income.

If enacted, S. 3612 would overturn that position and allow taxpayers to deduct covered expenses paid or incurred by an eligible recipient of a PPP loan that is forgiven under Section 1106(b).

On Tuesday, the AICPA sent a letter to Sens. Tom Carper, D-Del., John Cornyn, R-Texas, Charles Grassley, R-Iowa, Marco Rubio, R-Fla., and Ron Wyden, D-Ore., commending their efforts and supporting S. 3612.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus. 

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

For tax-related resources, visit the AICPA’s Coronavirus (COVID-19) Tax Resources page.

Alistair M. Nevius, J.D., (This email address is being protected from spambots. You need JavaScript enabled to view it.) is The Tax Adviser’s editor in chief.

 

PPP Funds are Starting to Flow! 4/14 12:39 PM

I’m happy to tell you that our first TAB member has received funds for the Payroll Protection Loan, so money is starting to flow!

 

EIDL Grant Employee Count Limitation 4/13  4:00 PM

There is a rumor, unconfirmed as of yet, but coming from a number of  different sources, that the EIDL Grant will be limited to $1,000 per employee with a maximum of $10,000.  Some small businesses that would qualify for less than $10,000 under the PPP loan may be considering this, but if they do go ahead there’s a danger that they may lose out because they don’t have enough employees.

 

Update on PPP Loan Receipt of Funds 4/13 4:00 PM

Most TAB members have applied for the Payroll Protection Plan Grant/Loan, and a number of them have heard from their bank that their application has been approved.  BNB seemed to be the furthest ahead, while Citibank only just started processing at the end of last week.

We will monitor this closely and post here as people get funded.

 

PPP Increase 4/7 6:51 PM

This just came from one of my contacts. “We just received the following update from our lobbyist.  Obviously things are pretty fluid, but this is their current assessment.  Looks like they are working to increase the available capital.”

Responding to the overwhelming demand from US small businesses for the emergency funding in the Paycheck Protection Program, Senate Majority Leader Mitch McConnell (R-KY)  announced that the Senate would pass an additional $250 billion in funding this week for the PPP to assure US small businesses that assistance is available to get them through the coronavirus crisis. The intent of the PPP is to offer a low interest loan which turns into a grant for businesses to keep employees employed over the next eight weeks. The money is guaranteed by the SBA and loaned by local bank partners.

Senator McConnell is negotiating with Senate Democratic Leader Chuck Schumer (D-NY) on the legislation which could potentially include technical fixes to the CARES Act as well as additional funding for hazard pay for healthcare workers and first responders. The goal of the Senate is to pass the additional funding on Thursday by a voice vote under unanimous consent. Speaker Pelosi as well as House Minority Leader Kevin McCarthy (R-CA) have been involved with the Senate negotiations and plan to have the House pass the Senate passed bill on Friday under unanimous consent. The President could sign the bill as early as Friday with the additional funding released immediately.

As you discuss PPP with your clients and their local banks we want to remind you that the Small Business Administration has deemed all FDIC insured institutions as SBA lenders for the PPP program. In addition this new round of $250 billion in funding should assure your clients and local banks that the PPP remains a viable funding stream to help them navigate these challenging times

More information can be found about PPP at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

 

Where to Apply for Paycheck Protection loans    4/3

People can start applying for Paycheck Protection loans from today (4/3), but Banks are struggling to get ready for the volume. Some are saying they aren’t going to participate, and others are limiting it to loan customers. We just got this from Quick Books, which looks encouraging. 

QuickBooks is working to simplify the Paycheck Protection Program for you.  We’re committed to providing the relief your business needs.  We’re working as quickly as possible to launch a simple application and funding process for the Paycheck Protection Program directly within QuickBooks.  Be on the lookout for more information about this program in the coming day