The coronavirus pandemic has placed millions of businesses and employees in peril. To augment this problem, the government has placed various policies to help enterprises to stay afloat. Some of these policies, however, bring about some questions and issues regarding their application. One particular policy would be the Payment Protection Program or PPP.

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The PPP is a stimulus that offers loans of up to $10 million to small businesses. Business owners must use this amount to pay for their employee wages and other basic expenses. Additionally, the government may waive the loan given that the business follows several guidelines. Companies may apply for the loan through any SBA-accredited lenders.

One of the guidelines the government requires for the forgiveness of loans is that employers must keep all their employees or at least rehire them by June 30, 2020. Many businesses, however, are confused regarding issues due to employees that refuse to be rehired. 

To alleviate this problem, the SBA added a new guideline in its PPP FAQs file. You can read an in-depth explanation of this guideline with this article by Jeff Drew on the Journal of Accountancy.

SBA issues PPP guidance on laid-off employees who refuse to be rehired

Businesses that received Paycheck Protection Program (PPP) loans can exclude laid-off employees from loan forgiveness reduction calculations if the employees turn down a written offer to be rehired, according to new guidance from the U.S. Small Business Administration (SBA), which warned that employees who reject offers of reemployment may find themselves ineligible to continue receiving unemployment benefits.

The guidance was included among three new questions the SBA added over the weekend to a PPP frequently asked questions (FAQ) file it maintains in consultation with Treasury. Click here to read more…

Another big question businesses and accountants raise regarding the PPP is its tax deductibility. The IRS, through their guidance Notice 2020-32, stated that PPP may be deductible but only up to the portion of the loan not forgiven. 

The American Institute of Certified Public Accountants, however, counters this claim. According to the organization, the non-deductibility of the loan goes against Congress’s intent when they passed the program. You can read more on AICPA’s position with this paper on the Journal of Accountancy that Sally P. Schreiber wrote last May 1, 2020.

AICPA challenging nondeductibility of PPP-related expenses

The IRS released guidance (Notice 2020-32) to explain that a taxpayer that receives a loan through the Paycheck Protection Program (PPP) is not permitted to deduct expenses that are normally deductible under the Code, to the extent the expenses were reimbursed by a PPP loan that was then forgiven.

The AICPA believes strongly that the IRS’s interpretation denying deductions of expenses forgiven under the PPP program is contrary to Congress’s intent. Chris Hesse, CPA, chair of the AICPA Tax Executive Committee, said: “In effect, the IRS guidance means that the taxability provision [Section 1106(i)] has no meaning. Click here to read more…

Fortunately, the government is privy on the calls for clearer policies to address this issue. It has led to the introduction of the Small Business Expenses Protection Act of 2020, S. 3612. The act aims to address some issues that the application of the CARES Act faces.

The AICPA expresses its support for the act. You can read more about it in the article “AICPA supports bill that would make PPP-funded expenses deductible” Alistair M. Nevius posted on the Journal of Accountancy last May 6, 2020. 

AICPA supports bill that would make PPP-funded expenses deductible

Legislation introduced in the Senate on Tuesday would overrule an IRS notice and clarify that ordinary expenses funded by Paycheck Protection Program (PPP) loans are deductible by taxpayers. The bill, the Small Business Expenses Protection Act of 2020, S. 3612, is currently in the Senate Finance Committee and is supported by the AICPA.

The PPP was created by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), P.L. 116-136. Under Section 1106(b) of the CARES Act, an eligible recipient of a covered loan can receive forgiveness of indebtedness on the loan. Click here to read more…

This 2020, the US faces one of the worst recession in modern history. The COVID-19 pandemic has shut down an unprecedented number of businesses and industries across the country. The government, however, is trying its best to alleviate the burden the economy carries with programs like the CARES Act. 

These programs, however, pose issues that all parties need to address to avoid creating additional problems for businesses. Our expert CPAs and financial advisers here in AldarisCPA can help you understand and overcome these issues. We offer top-of-the-line business and tax consulting services to companies across and around Seattle, WA. You can reach us by clicking on this link now!