News / May 5, 2020 PPP Loan Forgiveness

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Based on the number of calls I am receiving regarding debt forgiveness under the payroll protection program (“PPP”), and reviewing certain newly issued guidance by various authorities (i.e., IRS on May 1, 2020 and SBA on April 28, 2020) concerning the PPP, I have decided to provide you an update on the PPP loan.

PPP Loan Forgiveness: The following is an overview of the forgiveness allowed under the PPP loan:

  • Certain documents will be required to be submitted to the lender for forgiveness of the PPP loan amount (see Section 1106(e) of the CARES Act at, as well as, “what documentation will I be required to submit to my lender with my request for loan forgiveness” at
  • The expenditures that may be forgiven under the PPP loan are the following expenditures during the covered period (i.e., the eight-week period that begins on the date the lender makes the first disbursement of the PPP loan to the borrower):
  • Payroll costs (generally must be 75% of the total costs to be forgiven);
  • For more information on the list of items that make up payroll costs, see PPP information sheet borrowers “what counts as payroll costs” at;
  • See at:
  • Q&A 16 and footnote 3 for gross calculation of payroll in the PPP loan amount and in the forgiveness thereto;
  • Q&A 7 for how the $100,000 limit does not apply to certain benefits;
  • Q&A 8 for when the PPP loan covers paid sick leave; and
  • Q&A 32 for the cost of a housing stipend or allowance being included in the PPP loan;
  • Payments of interest under a covered mortgage obligation;
  • Covered mortgage obligation means any indebtedness or debt instrument incurred in the ordinary course of business that: (a) is a liability of borrower; (b) is a mortgage on real or personal property; and (c) was incurred before February 15, 2020;
  • For more information on this item, see Sections 1106(a)(2) and 1106(a)(7)(B) of the CARES Act;
  • Covered rent obligations; and
  • Covered rent obligation means rent obligated under a leasing agreement in force before February 15, 2020;
  • See Sections 1106(a)(4) and 1106(a)(7)(C) of the CARES Act; and
  • Covered utility payments;
  • Covered utility payment means payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020;
  • See Sections 1106(a)(5) and 1106(a)(7)(D) of the CARES Act.

Indirect Taxation of PPP Loan:

On May 1, 2020, the IRS in Notice 2020-32 (see issued guidance that in essence provides, to the extent the PPP loan is forgiven, otherwise tax deductible expenses that would be allowed on your tax return will not be allowed as a deduction from income. This position by the IRS is in spite of the underlying benefit of Section 1106(i) of the CARES Act that provides “[f]or purposes of the Internal Revenue Code of 1986, any amount which (but for this subsection) would be includible in gross income of the eligible recipient by reason of forgiveness described in (b) shall be excluded from gross income.” Because of the different tax treatment that will result between taxpayers obtaining the PPP loan (e.g., compare the difference in a schedule C or F IRS Form 1040 taxpayer calculation of the PPP loan amount and forgiveness thereto, and non-deductible character thereto, as compared to the exact same taxpayer filing an 1120-S and having W2 wages for himself or herself thereto), significant tax litigation will arise because of this ruling if Congress and/or the President do not “correct” the IRS on its position. I suggest you contact your local Congressional representative to let them know of this significant problem.

PPP Loan and May 7, 2020 Repayment:

The Small Business Administration (SBA) issued guidance on April 28, 2020 (see that provides people who borrowed money under the PPP should strongly consider paying those loans back by May 7, 2020 to the extent the following representation is not accurate: “[c]urrent economic uncertainty makes the loan necessary to support the ongoing operations of the Applicant.” Applicants with alternative access to capital might need to justify their determination that the loan was in fact necessary. The investigations that will result from this certification will more than likely revolve around whether the applicant had sufficient cash reserves, had financials showing nominal impact by COVID-19 crises or were otherwise strong financially. Again borrowers have until May 7, 2020 to return funds without penalty, which in retrospect may not have been “needed” per the PPP rules.

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