Congress Has Thrown PPP Borrowers the Life-Line We Expected

By Richard J. Wright, Jr. CPA on December 21, 2020
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Richard J. Wright, Jr. CPA

Director | Tax Practice

Finally, and not a minute too soon, Congress appears to have come to their collective senses and provided businesses with the critical correction to the CARES Act, with the New Stimulus Bill being voted on this evening. This means we can forget IRS Notice 2020-32, Revenue Ruling 2020-27 and other “noise” that has permeated the consciences of business owners since not long after the enactment of the Paycheck Protection Program

The magical words many were hoping for can be found below, directly from the Text of the Bill:

“no amount shall be included in the gross income of the eligible recipient by reason of forgiveness of indebtedness; no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income”

This was a major concern for many businesses that can now be put to rest, as they don’t have to worry about the non-deductibility of eligible expenses which would have artificially inflated their taxable income. Congress, since early summer, has said that their intent was for both the receipt of PPP funds not to be taxable and for businesses to be allowed to deduct the eligible expenses on forgiven loans; yes a true “double dip.”

“But wait, there’s more” – In the new legislation, Congress has also authorized another round of PPP loans, however, this time there are a few conditions. PPP Round II loans are limited to employers with less than 300 employees and would require that these businesses show that their revenues have declined by at least 25% during the first, second or third quarters of 2020 when compared to 2019. These loans are also limited in size from a maximum of $10 million to a maximum of $2 million.

All of this is based on what we know right now, however the text of the Bill is almost 5,600 pages.

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