Our last communication on PPP loans shared the issuance of the Internal Revenue Services' (IRS) Notice 2020-32, which clarifies that no tax deduction is allowed for an expense if the expense paid results in loan forgiveness under the PPP program.
On May 6, 2020, Bloomberg
published an article indicating a bipartisan group of senators introduced a measure to clarify SBA's Paycheck Protection Program so small businesses can deduct expenses paid with a forgiven PPP loan from their taxes. Planning in an ever-changing environment can be challenging. At this point, it is best to stay flexible and plan for a variety of outcomes.
Since May 1, we have seen the
Small Business Administration (SBA) update the PPP's Frequently Asked Questions (FAQ) for FAQs 40 through 45. The following is a brief review of a couple of these new FAQs:
Question: Will a borrower's PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA's implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
: No. As an exercise of the Administrator's and the Secretary's authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act's limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act's loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith written offer of rehire, and the employee's rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
This FAQ lays out a process for rehiring laid off employees; however, this process may be overridden by the interim final rule yet to be issued on this topic. Until the interim final rule is released, this FAQ provide business owners' good guidance on a process for documenting the rehiring or attempted rehiring of laid off employees.
. Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that "current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?
: SBA is extending the repayment date for this safe harbor to May 14, 2020. Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA's interim final rule providing the safe harbor. SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.
This FAQ indicates additional guidance is on the way with regards to meeting the requirements of the certification that accompanies the PPP loan application. We eagerly await this guidance as the current guidance is vague and confusing for many existing PPP borrowers.
. Question: Is an employer that repays its PPP loan by the safe harbor deadline (May 14, 2020) eligible for the Employee Retention Credit?
: Yes. An employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline (May 14, 2020) will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.
This FAQ acknowledges that an additional provision of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Employee Retention Credit, can be used by PPP borrowers who returned their loan proceeds by May 14, 2020. The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020 and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000 for payroll taxes of an employee. Recipients of a PPP loan cannot utilize this credit.
If we can assist you in explaining the programs' provisions, analyzing the potential benefits or gathering the needed information, please call any Sponsel CPA Group Team member or our colleagues listed below.