Consulting Services, Tax Services CARES Act: Update on Loan Certification and Deductibility of Forgivable Expenses
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Last updated on 5/1/2020

On March 27, 2020, Congress passed, and President Trump enacted, the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide emergency health care and economic assistance during the COVID-19 global pandemic. One of the main provisions created by the CARES Act is an extension of lending by the Small Business Administration (SBA) known as the Paycheck Protection Program (PPP). This week, both the SBA and the Department of Treasury issued further guidance about loan certification and deductibility of certain expenses with respect to the PPP, as described below. Both of these issues are under continuing scrutiny and may be subject to change. P&N will continue to monitor all relevant guidance and update this page accordingly.

Related Article: CARES Act Paycheck Protection Program

Loan Certification

In order to receive a PPP loan, borrowers must generally certify that current economic uncertainty renders such a loan necessary to support ongoing operations. Earlier this week, the SBA updated their PPP FAQs to indicate that private companies with “adequate sources of liquidity” should review and take into account their current business activity and ability to access other sources of liquidity before certifying their need for PPP loans. The FAQ went on to note that if a private company had received funds prior to the issuance of the guidance requiring review of liquidity, they can repay the loan in full by May 7, 2020 and be deemed to have complied with the relevant certification rules. This FAQ is in direct contradiction with the CARES Act, which waives the general SBA lending requirement that borrowers must not otherwise be able to obtain credit. P&N expects further information and clarification with respect to this requirement for private companies and will update this page as further information becomes available.

Deductibility of Forgivable Expenses

One of the defining provisions of the PPP is that any amount of PPP loan forgiven will not be treated as taxable income to the recipient. Despite this, on April 30, 2020, the Department of Treasury issued Notice 2020-32 stating that otherwise deductible expenses will not be deductible to the extent they give rise to loan forgiveness that is excluded from income. This essentially erases the benefit of the income exclusion for PPP loan forgiveness. Business owners, tax practitioners, and advocacy groups have voiced concern about this approach. P&N expects further clarification with respect to this guidance, and will update this page as further information becomes available.

Related Article: Debt Forgiveness Under the PPP

Help Is Available

As challenges and opportunities related to the CARES Act are identified, P&N’s dedicated professionals are committed to understanding and applying this information to help our clients. Please contact us or connect with your P&N advisor to discuss how this evolving situation may impact your organization.

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