The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the Small Business Administration’s (SBA) existing loan programs to include Paycheck Protection Loan Program (PPP) loans. PPP loans are available from the SBA to provide small businesses with loans to help pay payroll costs, mortgages, rent, and utilities during the COVID-19 crisis. PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs within a prescribed time frame.

Under the terms of the CARES Act, the amount of any PPP loan that is forgiven is excluded from taxable income. However, under additional guidance issued (IRS Notice 2020-32), the IRS has clarified that no deduction is allowed for an expense if the payment of the expense results in forgiveness under the PPP and CARES Act. In other words, a business cannot take a deduction for any expense incurred and paid using funds from a PPP loan that is ultimately forgiven.

In other news, Treasury Secretary Steven Mnuchin announced on April 28, 2020 that companies receiving PPP loans in amounts of $2 million or more will be subject to audit, potentially before the loans are forgiven. The SBA had previously issued clarification regarding the program, specifically to businesses with sources of liquidity to support their ongoing business operations. Businesses who received PPP loan proceeds, but who now believe they do not need the loan, can repay the loan in full by May 7, 2020. The government is encouraging PPP loan recipients to review their eligibility to ensure the good faith certification on their PPP loan application is correct.

As additional guidance is released by the government, Deluzio & Company will continue to communicate that information to our clients as soon as possible. If you have any specific questions or concerns, please feel free to contact us.