Under the CARES Act, the rapidly implemented Paycheck Protection Program (PPP) was subsequently amended Friday June 5th, 2020 with updates following the new Paycheck Protection Program Flexibility Act (PPPFA). These changes are geared towards many of the borrowers’ expressed concerns regarding problematic deadlines, rehiring parameters, and scalability of the awarded PPP loans.
The most notable changes to consider include:
- Forgiveness limitations for uses of PPP cash as it relates to the payroll percent ratio is now 60-40 vs. the old 75-25 ratio.
- The expense forgiveness window has expanded to 24 weeks vs. the old 8 weeks.
- The loan repayment requirement is now 5-years vs. 2-years on future borrowings and existing PPP loans have the option to extend to 5 years.
- PPP recipients can defer payroll taxes.
- Extends the June 30, 2020, rehiring deadline to December 31, 2020
The most notable open-ended challenge to the PPPFA surrounds the deductibility of expenses that track from forgiven PPP debt.
- Under IRS notice 2020-32, the guidance provides that no deduction is allowed under the Internal Revenue Code (Code) for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Public Law 116-136, 134 Stat. 281, 286-93 (March 27, 2020) and the income associated with the forgiveness is excluded from gross income for purposes of the Code pursuant to section 1106(i) of the CARES Act.
Currently, Congress, Senate, the AICPA among others are arguing for a Bill against the IRS’ “Double Dip” consideration, in that the original intent of a tax break on the front end for the forgiveness of debt would be negated on the back end by disallowing the otherwise deductible expenses.
Chapman Hext, & Co. P.C. is following the unveiling of these hot button issues closely and will be posting updates as future developments come to a head.