On October 8, the Small Business Administration (SBA) and Department of the Treasury announced new guidance that simplifies the forgiveness process for businesses that received small loans as a part of the Paycheck Protection Program (PPP). Now, businesses that received $50,000 or less are able to self-certify that they used the money appropriately and receive complete forgiveness.

This guidance is especially important for small CRM firms that may have received these loans. Borrowers still need to provide documentation such as a payroll provider report, but the new form is much simpler. Additionally, the requirement for showing that the borrower did not reduce head count or salaries has also been removed. Previously such a reduction would have resulted in a reduction of loan forgiveness.

There continue to be questions concerning deducting expenses used with PPP funds. From Forbes:

The main outstanding issue is the deductibility of expenses used with PPP funds. While the original CARES Act creating the PPP program made clear that once the loan is forgiven and becomes a grant, the funds are NOT income and not taxable as such. However, the Internal Revenue Service then issued guidance (Notice 2020-32) on April 30, 2020, stating that expenses normally deductible for a business CANNOT be taken if used with PPP money. Again, every lender and business advocacy group has been lobbying against this and have been hoping to see a fix in the new stimulus bill.

The main argument against this rule was simply one of fairness: if the intent was a grant, why create a new tax burden on these businesses the government was trying to bail out? The IRS rationale, however, was the businesses should not be allowed to “double dip” by both getting tax-free government money and taking these deductions. Again, the IRS is alone in that assessment.

More important, the rule created a grey area many businesses are now facing. Prior to forgiveness, PPP is a loan and remains one until forgiveness is received. As lenders have 60 days to review forgiveness applications and the SBA 90 days, most borrowers won’t receive a forgiveness decision until Q1 or Q2 of 2021, if then, with the likely backlogs to come. So, the question becomes, do borrowers take the deductions now and amend their tax returns upon full or partial forgiveness, or not take the deduction and receive a refund if all or part of their PPP loan is not forgiven? And, what of any potential penalties and interest?

Check out the full Forbes article here. You can view the full interim rule here, and stay tuned to the ACRAsphere for additional information on CRM-specific pandemic news.