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Tax Issues Associated With Paycheck Protection Program Loan Forgiveness Process

May 21, 2020
Bloomberg Tax

The Paycheck Protection Program (PPP) was created to help keep small businesses afloat and their employees paid while they weather the Covid-19 pandemic. Instead, these businesses have encountered multiple rule changes and conflicting information. In a Bloomberg Tax article, published on May 21, 2020,  Juan F. Vasquez, Jr., Jaime Vasquez, and Victor J. Viser  highlight the challenges and explain the problems encountered with the PPP loan forgiveness application.

Significantly, the application provides an optional Alternative Payroll Covered Period for small businesses with a biweekly (every other week) or more frequent payroll schedule. If elected, the small business’s eight-week covered period, for purposes of calculating eligible payroll costs, begins on the first day of their first pay period after the loan was disbursed. On the other hand, if no election is made, the small business will continue to use the normal covered period which starts on the first day the loan was disbursed. Small businesses using the Alternative Payroll Covered Period should keep in mind that, in general, this alternative period only applies for payroll costs, and other non-payroll expenses continue to use the normal eight-week covered period.

From a potential tax deduction standpoint, PPP funds amounts are excludable from gross income under Section 1106(i) of the CARES Act, but the IRS has issued subsequent guidance taking the position that ordinary business expenses that are forgiven as part of a PPP loan are in fact not deductible. The IRS position appears contrary to Congressional intent in enacting the CARES Act and could be subject to court challenges down the road. Further, such IRS position may well change or be superseded going forward, especially in light of recent filed legislation that would ensure deductibility of certain PPP loan amounts received and paid for covered expenses.

For the full article, go to Bloomberg Tax at https://news.bloombergtax.com/daily-tax-report/insight-tax-issues-associated-with-paycheck-protection-program-loan-forgiveness-process