While still awaiting additional information on loan forgiveness, other aspects of the PPP program are being updated, and some of the longer-term thinkers among us are pondering the tax ramifications of the program.
The Treasury department continues to update their FAQ. The full FAQ is available online for your convenience.
Citizens Bank borrowers will likely find the following specific FAQ items of interest:
Question 43: 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?
Answer: 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.
Question 45: Is an employer that repays its PPP loan by the safe harbor deadline (May 14, 2020) eligible for the Employee Retention Credit?
Answer: 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.
Tax Ramifications:
And now for those of you already thinking about the tax ramifications of the loan forgiveness and the normally deductible expenses you will pay with the funds, the IRS released Notice 2020-32. The notice can be found in its entirety online. Following is a summary paragraph from the notice:
This notice provides guidance regarding the deductibility for Federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan (covered loan) pursuant to the Paycheck Protection Program under section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)). Specifically, this notice clarifies that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.
Citizens Bank will continue to bring you information and resources as they become available.
Citizens Bank recommends that you consult your outside advisors and experts in all matters relating to the PPP and loan forgiveness. We will work to provide you timely and accurate information, but the burden for obtaining forgiveness rests on the borrower. All information provided in this format or any other communication regarding the program is believed to be accurate, but no guarantee is or can be made by any Citizens Bank representative.