By Nick Goldstein, vice president of regulatory and legal issues, ARTBA

ARTBA and a coalition of trade associations are challenging new questionnaires required for Paycheck Protection Program (PPP) loan forgiveness. The Small Business Administration (SBA) forms are being issued by lenders to profit and non-profit borrowers of $2 million or more.

Seperately, the Internal Revenue Service (IRS) Nov. 18 released two pieces of additional guidance on whether or not PPP loan expenses are deductible. More details and links below.

In a Nov. 17 letter to congressional leaders and the Trump administration, the 80-member group says, “the questionnaires introduce a confusing and burdensome process for both borrowers and lenders, and we fear that it could lead the agencies to inappropriately question thousands of qualified PPP loans made to struggling small businesses.”

Specifically, there is concern that the forms do not allow loan recipients to fully explain why their “good faith” reasoning in applying for the loans. Also, the nature of the questions and the information being sought has led some loan applicants to fear they will be penalized for being successful during the COVID-19 pandemic.  Additionally, the groups note that the forms were introduced with no warning or guidance from SBA.

The letter asks for a temporary suspension of the questionnaires. It recommends “[a] better approach would be to ask the borrower to provide a narrative statement with any documentation the borrower believes appropriate to support the basis for its good faith certification that the uncertainty in economic conditions made the PPP loan necessary to support the ongoing operations of the business.”

The PPP was created earlier this year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, shortly after the outbreak of the COVID-19 pandemic. The program closed in August. Unless forgiven, the loans have 2- or -5-year maturity at 1 percent interest.

ARTBA will continue to work with SBA and keep our members updated on developments with the PPP program.

IRS Releases New Guidance on Deductibility of PPP Loan Expenses

IRS Revenue Ruling 2020-27 provides guidance on whether a PPP loan participant that paid or incurred certain otherwise deductible expenses can deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan.

The revenue ruling also provides guidance if, as of the end of the 2020 taxable year, the PPP loan participant has not applied for forgiveness but intends to apply in the next taxable year.

Revenue Ruling 2020-51 provides a safe harbor for certain PPP loan participants, whose loan forgiveness has been partially or fully denied, or who decide to forego requesting loan forgiveness, to claim a deduction for certain otherwise deductible eligible payments on the filer’s original or amended tax return for the 2020 taxable year.

ARTBA members are encouraged to seek advice from trained tax professionals when ascertaining how either piece of guidance may impact their businesses.