Millions of small businesses wait for PPP loan cancellation
As the prospects for a deal on the next economic stimulus package become increasingly uncertain in 2020 and the tax consequences of a request for PPP loan cancellation remain uncertain, millions of small businesses and their advisers have struggling to determine when to apply for cancellation of the PPP loans they have taken out. To date, 5.5 million small business owners have received P3 funding. Of particular concern are the tax consequences that may await them if they apply for a loan forgiveness before the end of the year.
The CARES Act made it clear that once a PPP loan is canceled and becomes a grant, the funds do not constitute income for tax purposes. The Internal Revenue Service (IRS) raised concerns when it released Notice 2020-32 on April 30, 2020 clarifying that business expenses normally deductible for a business would not be deductible if PPP funds were used to pay for these. expenses.
Before the remittance, the PPP is a loan and remains until the remittance is received. Even though borrowers are asking for a rebate today, most likely won’t receive a decision until 2021. The question many borrowers face is whether they should take the deductions now (on their 2020 tax returns) and modify these tax returns in the event of total or partial remission. ; or not take the deductions and receive a refund if all or part of their PPP loan is not canceled. To complicate matters further, unless there is legislation or a change in IRS guidelines, these businesses face potential penalties and interest if they take the deductions and a loan forgiveness is. then granted.
Should businesses apply for a PPP loan forgiveness now?
Some tax professionals advise their small business clients to forgo business expense deductions and request a rebate now, especially if at least 60% of the loan funds were used on payroll during the 24-week period covered (the period covered begins on the day the loan was received), which would ensure remission. If the current IRS guidelines change, an amended return claiming the deductions can be filed.
Other experts, including the leadership of the American Institute of Certified Public Accountants (AICPA), advise waiting in the hope that the US Treasury and Small Business Association’s (SBA) final FAQ on forgiveness of PPP, and potentially legislation, will come before the end of the year to clarify loan forgiveness and tax rules. The AICPA and many others have argued for a blanket forgiveness of loans under $ 150,000, without success to date. The approximately 4.2 million PPP loans of $ 150,000 or less represent 85% of all PPP loans approved.
On October 8, the SBA provided a simpler forgiveness request for PPP loans of $ 50,000 or less. The borrower can ignore staffing changes as well as changes in wages or salaries, but they are still required to make certifications and provide documentation on how the funds were spent.