CARES act forgivable loans for businesses

[NDGuy]

FYI-IRS issued some guidance last week (Rev Rul 2020-27 and Rev Proc 2020-51). Nothing earth shattering, basically just reaffirms IRS' position that the expenses used to claim forgiveness are not deductible. However, one thing IRS did clarify is timing...they basically said that if you have forgiveness or reasonably expect to have forgiveness by 12/31/20, then the expenses are not deductible in tax year 2020.

I am still having a hard time with IRS' position because it is clearly against Congressional intent. There was no reason for Congress to specifically put in the CARES Act that forgiveness income was not taxable, unless they intended the whole thing to be tax free. Oftentimes, Tax Court cases indicate that they believe Congress didn't understand their own legislation, but that was clearly not the case here. Ranking members of both parties expressly stated the Congressional intent with a letter to Mnuchin on May 5, 2020...see link below:

https://www.grassley.senate.gov/sites/default/files/2020-05-05%20CEG%2C%20RW%2C%20RN%20to%20Treasury%20%28PPP%20Business%20Deductions%29.pdf

If Congress doesn't act to clarify or Yellen doesn't force a change in IRS position, it's going to be the Wild West on 2020 filings. Remember, IRS doesn't write the tax law, Congress does. Just because they publish their opinion, doesn't mean it is law...and this time, I think they're flat wrong.

We are awaiting hearing back on the small loan my wife got when her salon got shut down for 2 months. This is such a shitshow.

 

[Gunnersdad49]

The “we must do something” crowd came up with relief funds. The IRS wants to maximize their revenue. The issue is none of it was well thought through.
we got a PPP loan that would be a godsend, but the repayment/forgiveness ambiguity has forced us to pretend we don’t have it, and act like we never got it. My guess is the IRS Is going to cause the second wave of business closures around June of 2021.

 

[eamyrick]

Tag for updates. Wife still hasn’t been able to process forgiveness through PayPal.

 

[Nomadx2]

WE received our forgiveness notice from the SBA last week. Waiting to discuss with our accountant on how it will be handled.

 

[Titan]

Looked like the sole proprietor loan forgiveness will essentially be a signature. Corp PPP loans will require proof of expenses.

As for taxes, the IRS has stood by its decision that it is not taxing the actual loan as income (or tax the forgiven amount), but the expenses used to forgive that loan are NOT deductible. Essentially net zero as far as the PPP loan amount and those expenses go. Soooo basically it comes right back around to paying the tax on that PPP loan amount if you compare to a normal year and this money was used to replace lost income.

I don't think that was the intent, so there is still time for that to change for 2020.

 

[Glory]

Looked like the sole proprietor loan forgiveness will essentially be a signature. Corp PPP loans will require proof of expenses.

As for taxes, the IRS has stood by its decision that it is not taxing the actual loan as income (or tax the forgiven amount), but the expenses used to forgive that loan are NOT deductible. Essentially net zero as far as the PPP loan amount and those expenses go. Soooo basically it comes right back around to paying the tax on that PPP loan amount if you compare to a normal year and this money was used to replace lost income.

I don't think that was the intent, so there is still time for that to change for 2020.

I figured it would be a given that you would not be able to write off the expenses paid for by the PPP.

 

[String&stick]

So if you don't know already the SBA is a joke. . .

But my bank has had 100% forgiveness on everything that should be forgiven. The process is tedious, there is no rhyme or reason to when loans get forgiven (it's certainly not in the order they are submitted), and they are horrid to contact.

That being said, if you got a loan your funds should be fully forgiven, excluding any EIDL loan advance amount. So that is good, and it won't be taxed.

As far as providing proof of funds use, this basically just goes to your bank to hold onto until forgiveness is processed. And most of the stuff under $50,000 has a short form now.

Basically just hang in there and your forgiveness will eventually come!

 

[tt_johnsclist]

I got my forgiveness notification yesterday. I found both the application and forgiveness process very easy and painless, especially compared to much of the other government funding I deal with. Mine was a smaller loan and a short form forgiveness process.

 

[Kimber7man]

I figured it would be a given that you would not be able to write off the expenses paid for by the PPP.

If you can’t deduct the expenses then you’re paying tax on the income from the PPP loan, even if the loan is forgiven.

 

[Wapiti7]

Update
The bill Trump signed had a couple important PPP effects:
1) PPP is completely tax free (round 1 and round 2). Completely blows IRS' position out of water. Expenses used to claim forgiveness remain deductible. Forgiveness income is not taxable. Forgiveness income adds to a partner's basis (in partnership) or shareholder basis (in S Corp)...this is higher level tax shit. In short, it is tax free.
2) Another round of PPP. Works similar to first round with some changes. Max loan is $2m. Must have 300 or less employees to qualify (round 1 was 500). Need to be able to demonstrate drop of 25% in gross receipts (any quarter in 2020 compared to same quarter in 2019). Still based upon 2.5 months of payroll...payroll is either 2019 (should be same amount as your round 1 PPP), but can be 2020. For restaurant/hotel industry, it is 3.5 months of payroll. For loans less than $150k, simplified process for applying and forgiveness. Total of $284B for round 2 loans.
3) Can used 3508S to apply for forgiveness (round 1 and 2) up to $150k in loan. This is the one pager certification (don't give them calculations).
4) There is some ambiguity in who can apply for round 2. Some people are saying you have to have received a round 1 to play in round 2. Some people disagree. Law is hard to read/understand...I'm sure SBA will chime in on this.
5) Don't have to reduce your forgiveness for the EID grant.

 

[sandhillhunter]

Update
The bill Trump signed had a couple important PPP effects:
1) PPP is completely tax free (round 1 and round 2). Completely blows IRS' position out of water. Expenses used to claim forgiveness remain deductible. Forgiveness income is not taxable. Forgiveness income adds to a partner's basis (in partnership) or shareholder basis (in S Corp)...this is higher level tax shit. In short, it is tax free.

That is good news if this is true. Like many, we have been sitting on our funds waiting for forgiveness and notification if we would be paying tax on this money or not.

 

[Wapiti7]

Update
SBA provided an updated interim final rule yesterday that changes the funding for formula for self employed individuals (Schedule C, Schedule F for farmers). In short, they are allowing those types of filers to calculate their PPP loan based upon GROSS income instead of net income. This only applies to loans that have not yet been approved (so if you already got approved, you can't reapply under new rules). This applies to round 1 loans and round 2 loans. Assume you have a sole proprietor that had 2019 gross receipts of $100,000 and he deducted $110,000 of expenses. Under old rules, he would have qualified for a loan of $0. Now, he would qualify for a loan of $20,833. This is obviously simplified but that's the gist of it. Under current law, PPP closes 3/31/2021.

https://www.sba.gov/sites/default/files/2021-03/SBA%20PPP%20IFR%20Loan%20Amount%20Calculation%20and%20Eligibility%20%283-3-21%29.pdf

Anybody want to debate the insanity of this?

 

[String&stick]

Update
SBA provided an updated interim final rule yesterday that changes the funding for formula for self employed individuals (Schedule C, Schedule F for farmers). In short, they are allowing those types of filers to calculate their PPP loan based upon GROSS income instead of net income. This only applies to loans that have not yet been approved (so if you already got approved, you can't reapply under new rules). This applies to round 1 loans and round 2 loans. Assume you have a sole proprietor that had 2019 gross receipts of $100,000 and he deducted $110,000 of expenses. Under old rules, he would have qualified for a loan of $0. Now, he would qualify for a loan of $20,833. This is obviously simplified but that's the gist of it. Under current law, PPP closes 3/31/2021.

https://www.sba.gov/sites/default/files/2021-03/SBA%20PPP%20IFR%20Loan%20Amount%20Calculation%20and%20Eligibility%20%283-3-21%29.pdf

Anybody want to debate the insanity of this?

They did the same thing for schedule F (farm income) this whole second round. .. so farmers driving brand new trucks with multi million dollar net worths, that saw little to no effect from covid-19 got extra paydays. . .

Part of it is just to simplify so that those effected do get paid ranchers saw huge price declines in cattle during covid they need some help, some types of farms may have been effected so all schedule F gets free money!

At least most of the schedule C and self employed people were probably actually harmed or shit down so the money probably means more to them. But yes overall there is a lot of insanity! But the Dems are gearing up to send out another round of Tag and ammo cash!!!

 

[PA farmboy]

I am sorry but farmers got impacted big time as well. How do you think the vegetable farmers that sold to restaurants fared while everything was shut down? Or like myself the livestock farmers when COVID hit the meat packing plants and they were all shutting down which in turn drove down prices we received at the sale barns as well. Just because you see a inflated price for food doesn’t mean it makes it back to the source, knew of many dairy farms that ended up dumping thousands of gallons of milk because of plants being shut down as well.

 

[88man]

New law extends COVID tax credit for employers who keep workers on payroll | Internal Revenue Service

IR-2021-21, January 26, 2021 — The Internal Revenue Service urges employers to take advantage of the newly-extended employee retention credit, designed to make it easier for businesses that, despite challenges posed by COVID-19, choose to keep their employees on the payroll.

www.irs.gov

ERTC is another good one. You will have to refile your 941's thou

 

[String&stick]

I am sorry but farmers got impacted big time as well. How do you think the vegetable farmers that sold to restaurants fared while everything was shut down? Or like myself the livestock farmers when COVID hit the meat packing plants and they were all shutting down which in turn drove down prices we received at the sale barns as well. Just because you see a inflated price for food doesn’t mean it makes it back to the source, knew of many dairy farms that ended up dumping thousands of gallons of milk because of plants being shut down as well.

And if you read my post all the way you would notice I recognized this issues with cattle , and stated that part of this is just to simplify things. . . Row crop farmers (corn And soybeans the big two) were unaffected and got big paydays that is just a fact.

Cattlemen and dairy guys probably weren't even made whole with ppp.

Same with schedule C people, some were shut down and could make 0 income. . . Some continued to make money and got an extra payday from uncle Sam!

It's just the way to simplify the system and make it easy for the IRS, unfortunately many of those that don't need it take it anyway.