Congress Delivers Last Minute Gift to Businesses with PPP Loans

Yesterday, Congress passed a bill with a plethora of tax law changes including some changes to the taxability of how expenses are treated for businesses with PPP loans.

Until yesterday, the IRS took the position that expenses paid using funds provided by Payroll Protection Program loans were not deductible if the loan was ultimately forgiven. This meant some unexpected tax bills for those businesses. But yesterday’s bill changed that. All expenses incurred are deductible whether the PPP loan is ever forgiven and whether the PPP loan was used to pay those expenses.

In addition, if you received an Economic Injury Disaster Loan advance, this EIDL advance no longer reduces the amount of PPP loan forgiveness. Previously the EIDL loan reduced the amount of PPP loan forgiveness.

If you have already applied and received PPP loan forgiveness and the forgiveness amount was reduced by the EIDL advance, you should contact your lender and ask about getting the remaining PPP loan forgiven.

In addition to these changes, there is a simplification in the loan forgiveness process for borrowers with PPP loans of $150,000 or less. It is unclear currently what those simplifications are.

Lastly, there is an expansion of the PPP program to allow some businesses to receive an additional loan. This second loan is called a “PPP second draw” loan and is targeted at businesses with fewer than 300 employees and businesses that can demonstrate at least a 25% reduction in gross receipts in the first three quarters of 2020 as compared to 2019.