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Paycheck Protection Program (PPP) Loan Update – April 30, 2020

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Interim Final Rule on Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders

On April 30, 2020, the U.S. Small Business Administration (SBA) issued Interim Final Rule on Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders. The guidance covers the following areas:

  1. Can a single corporate group receive unlimited PPP loans?
  2. Non-Bank and Non-Insured Depository Institution Lenders

Some items of note:

  • Single corporate group limit of $20 million is effective for any loan that has not yet been fully disbursed as of April 30, 2020.
  • It is the responsibility of an applicant for a PPP loan to notify the lender if the applicant has applied for or received PPP loans in excess of $20 million. Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes, and the loan will not be eligible for forgiveness.

IRS Guidance Provides That Forgiven PPP Costs Are Not Deductible

On April 30, 2020, the IRS released Notice 2020-32 addressing the deductibility of otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a PPP loan. IRS guidance provides that forgiven PPP costs are not deductible. Read our article further exploring this: Is the IRS Undercutting the Goal of the PPP? New IRS Guidance Provides that Forgiven PPP Costs are not Deductible

Congressmen Reacting to IRS Position on PPP Deductions Disallowance

Earlier today (May 1) we alerted you to the fact that the IRS has provided guidance indicating that forgiven PPP costs would not be deductible for federal income tax purposes. As expected, key congressmen have already started to react, expressing their disappointment in the IRS’s position as running contrary to the Congressional intent. A spokesperson for Congressman Richard E. Neal, D-Mass., Chair of the House, Ways and Means Committee has already announced Neal’s intent to fix the issue in the next wave of legislation. Read more on this topic here >>

Interim Final Rule on Disbursements

On April 29, 2020, the U.S. Small Business Administration issued Interim Final Rule on Disbursements. The guidance covers the following areas:

  1. Disbursements

Some items of note:

  • Multiple draws are disallowed
  • Reinforces that the eight-week period starts on the date of first disbursement

PPP Frequently Asked Questions Update – April 29, 2020

On April 29, 2020, the U.S. Small Business Administration provided an update to the PPP Frequently Asked Questions :

    1. Question: Will SBA review individual PPP loan files?

Answer: Yes. In FAQ #31, SBA reminded all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Additional guidance implementing this procedure will be forthcoming. The outcome of SBA’s review of loan files will not affect SBA’s guarantee of any loan for which the lender complied with the lender obligations set forth in paragraphs III.3.b(i)-(iii) of the Paycheck Protection Program Rule (April 2, 2020) and further explained in FAQ #1.15

This question further reinforces that all borrowers should be prepared to support their need (current economic uncertainty that makes the loan request necessary to support the ongoing operations) of a PPP Loan.

If you have any questions on what would satisfy the ‘current economic uncertainty that makes the loan request necessary to support the ongoing operations’ requirement, please consult with your legal counsel.

 

COVID-19 Business Resources

Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law. 

 

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