Most frequent questions and answers regarding 2020 year-end tax planning and PPP loan considerations.
Q: Can a PPP loan be forgiven in whole or in part?
A: The PPP loan can be forgiven in whole or in part. The actual amount of loan forgiveness will depend on the total amount of payroll costs and other eligible costs paid during the covered period. There are reductions in the amount of forgiveness based on the percentage of eligible costs attributable to non-payroll costs, any decrease in FTEs, and decreases in salaries/wages per employee.
Q: Is it true a PPP loan of $50,000 or less is automatically forgiven?
A: We have not seen any guidance about blanket forgiveness. The 3508S form is what you can use to request forgiveness of $50,000 or less.
Q: Once the SBA officially forgives the loan, do you see any risk of them coming back to audit?
A: At this point, we don’t know the answer to that. It’s important to make sure you have all of your documentation maintained. It will be a lot easier to have it on hand now than having to look back at what was going on during that time.
Q: If we receive no official forgiveness from the IRS in 2020, is the taxability a 2021 issue actually?
A: Income resulting from PPP loan forgiveness is non-taxable. Additionally, new guidance issued on November 18, 2020, states that no deduction is allowed for an eligible expense that is otherwise deductible if the payment of the eligible expense results in forgiveness of the covered loan. Essentially, if the taxpayer has a reasonable expectation that the loan will be forgiven at the end of the tax year in which the expenses were incurred then the expenses are not deductible in the year incurred. For example, if a calendar year taxpayer has a $500,000 PPP loan and incurred $500,000 of eligible expenses in 2020, the entire $500,000 will be non-deductible in 2020 if the tax payer reasonably expects the loan to be forgiven in 2021 regardless of whether the forgiveness application is submitted in 2020 or 2021.
Q: Is the covered period 8 through 24 weeks?
A: It depends. The 8-week period applied to loans received before June 5th but they do have the option to use a covered period of 24 weeks. You may request forgiveness before the end of the covered period if you have exhausted all the funds. If there were any deductions in payroll, that may affect forgiveness during that period.
Q: What does a PPP borrower need to do if they are considering a change in ownership?
A: They should consult with their lender, accountant, and attorney, and review the SBA Procedural Notice – Paycheck Protection Program Loans and Changes in Ownership
Q: What are the PPP affiliation rules?
A: Affiliation may be based on the following: (1) ownership; (2) affiliation rising under stock options, convertible securities, and agreement to merge; (3) management; (4) identity of interest. There is a religious exemption and a waiver for certain businesses and franchisees. Additional guidance can be found here: Affiliation Rules Applicable to SBA PPP
Q: How long does it take to receive PPP forgiveness?
A: Borrowers have 10 months from the end of the CP to apply for forgiveness. A bank has 60 days to review, and the SBA has 90 days to approve.
These FAQs and the related webinar materials are provided for general information purposes only and do not constitute legal or professional advice. No user should act on the basis of any material contained in the FAQs without obtaining proper legal or other professional advice specific to their situation.