As you may have read recently, the Paycheck Protection Program (PPP) closed on Aug. 8, 2020, so that no additional loans would be granted under the program. The possibility exists that another round of funds through the program will be made available if and when Congress agrees on additional stimulus for taxpayers and the economy. It is unclear whether this additional funding will occur by presidential executive order, and as of yet this has not happened. In addition, the Small Business Administration (SBA) recently updated its frequently asked questions related to the PPP program as of Aug. 11, 2020.
Concurrently, you may have read that Potbelly’s, which had initially received a loan through the program and later returned the funds due to negative publicity, ended up taking a loan before the program closed. Potbelly’s determined that they needed the funds and would use it properly and consistently with the program rules, to pay salaries and keep people employed. With significant funds remaining available at the time the program closed, adverse publicity for Potbelly’s should not be a factor anymore.
Many borrowers have spent their PPP loan money and some have submitted applications for loan forgiveness. Others may be submitting those applications soon, while additional borrowers are continuing to use the funds during the extended allowable measuring period in an attempt to ultimately achieve full loan forgiveness. One of the biggest X factors out there continues to be the income tax consequences of loan forgiveness, which seem to be getting very little airtime in media outlets.
Recall earlier this year the IRS announced that any expenses incurred for which PPP loan forgiveness is obtained will not be deductible for tax purposes. This IRS determination regarding denial of the tax deductions effectively negates the provision of the CARES Act regarding loan forgiveness being non-taxable income to the borrower.
Shortly after the IRS made this announcement, members of Congress on both sides of the aisle asserted this was not the result Congress intended when they passed the law. As a result, many practitioners have expected Congress to ‘fix’ this result and allow borrowers to get the full tax-free benefit that was apparently intended. That fix has yet to occur. Borrowers need to keep this in mind when they are conducting tax and cash flow planning throughout the rest of the year.
If you have questions or need advice related to the SBA’s PPP program, Chuhak & Tecson attorneys are ready and able to assist you.
Client alert authored by Mitchell D. Weinstein (312 855 4608), President, Chuhak & Tecson, P.C.
This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.