Over the past week both the Small Business Administration (SBA) and the US Treasury have made some significant “clarifications” in the Paycheck Protection Program (“PPP”) created under the CARES Act.
The most important of these “clarifications” came in two separate announcements from the SBA and the Treasury and are contained in questions #31 and #39 of the Frequently Asked Questions which can be found at https://www.sba.gov/document/support–faq-lenders-borrowers (updated as of 4-29-2020). These provide as follows:
- All borrowers must assess their economic need and ensure that the loan certification singed with the application, i.e., “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” was in good faith, taking into account your current business activity and ability to access other sources of liquidity sufficient to support your ongoing operations in a manner that is not significantly detrimental to the business. Borrowers who return the funds by May 7, 2020 will be deemed to have made the certification in good faith. In other words if a borrower is concerned about their certification in lieu of this new guidance, they may return the funds by May 7th and will be deemed to have acted in good faith.
- The SBA and Treasury have determined that all loans in excess of $2 million will be reviewed following the lender’s submission of the forgiveness request. The SBA may review loans under $2 million, but they have announced that they will review all loans in excess of $2 million, with what seems to be a focus on the certification set forth above.
In addition, the Treasury issued Notice 2020-32 regarding the PPP Loan Program that clarifies the following:
- Consistent with the clear language of the CARES Act, the loan forgiveness will not result in income to the taxpayer. Generally such a forgiveness would result in discharge of indebtedness income to the taxpayer and the CARES Act specifically provides an exception to this rule as it relates to PPP loan forgiveness.
- IRS Notice 2020-32 clarified that to the extent a taxpayer received forgiveness of a portion of their loan proceeds, they will not be able to deduct the expenses paid with those forgiven proceeds.
Keep in mind that the SBA is updating, revising and “clarifying” on a continuous basis so information believed accurate today may change. If you have questions or would like any assistance with applying these to your business relative to a PPP Loan, please contact us at 941.748.0100.