Last update 5/5/20
Just over the past few days, the IRS and the Small Business Administration (SBA) issued new guidance related to loan forgiveness under the Paycheck Protection Program (PPP), a key part of stimulus relief under the federal CARES Act. Highlights of the new guidance are included below:
PPP and Tax Deductions
On April 30, the IRS ruled out some important tax deductions if theyâ€™re tied to forgivable PPP loans. The agency clarified that disallowable deductions for expenses will include payroll costs, mortgage interest, rent, and utilities â€“ to the extent they are being reimbursed by loans forgiven under PPP. There is also forgiveness of debt income when your loan is forgiven, which is normally when â€œloansâ€ are taxed as income. Click here for the full details.
On May 3, the Small Business Administration (SBA) released an updated list of Frequently Asked Questions for business owners and nonprofit hospitals related to eligibility and loan forgiveness. Two of the latest Q&A sets are summarized below.
(#39) Q: Will SBA review individual PPP loan files?
A: Yes. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lenderâ€™s submission of the borrowerâ€™s loan forgiveness application. Additional guidance implementing this procedure will be forthcoming.
(#40) Q: Will a borrowerâ€™s PPP loan forgiveness amount be reduced if the borrower laid off an employee, then offered to rehire the same employee, but the employee declined the offer?
A: No. A soon-to-be-released ruling from SBA and Treasury excludes laid-off employees from the PPPâ€™s loan forgiveness reduction calculation, if the borrower offered to rehire these employees for the same salary/wages and same number of hours. To qualify for this exception, the borrower must have made a good faith, written offer of rehire, and have documented the employeeâ€™s rejection of that offer. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
The SBA is slated to issue additional guidance any day now; REDW will bring you the latest updates just as soon as they become available. Keep an eye out for our next webinar on this very topic. For the latest developments, you may also visit our COVID-19 Resource Hub.
The above questions and answers have been consolidated and edited form the official Q&A document published by the SBA. You can access the complete SBA guidance here. Additional questions can be directed to Principal James Ortiz, a member of our COVID-19 Task Force. James can be reached, here.
REDW is committed to keeping you informed at all times, but especially during a crisis of the magnitude of the COVID-19 pandemic.Â Stay connected with us onÂ LinkedInÂ andÂ @REDWLLC. Or check out some of our other updatesÂ here.