PPP Forgiveness and Expense Deductibility
To end a tumultuous 2020 and kick off the new year, Congress passed the Consolidated Appropriations Act (“the Act”). There were many business and tax provisions in the Act that are extremely favorable, most all of which we lobbied for as part of the great efforts of the American Institute of CPAs. See below for a few of these items that we will plan for and build in to our tax & financial reporting:
• PPP funds will be deductible: Earlier in 2020, the IRS published Notice 2020-32 that reflected their intent to disallow deductions paid for with PPP funds. This new Act of Congress, however, provides that “no deduction shall be denied or reduced….”. Thus, qualifying expenses paid with PPP funds are now completely deductible. This is a huge tax win.
• Simplified forgiveness: The Act created a simplified forgiveness application process for loans of $150,000 or less. Such borrowers will be eligible for forgiveness if they sign and submit to the lender a simple one-page certification. Additional guidance from the SBA is necessary in determining the format of the certification, which is expected by the end of this month.
• EIDL grants will not reduce PPP forgiveness: Economic Injury Disaster Loan (EIIDL) advances (grants) of up to $1,000 per employee ($10,000 total) will no longer reduce PPP loan forgiveness, another great relief.
• Additional expense categories and flexibility: More flexibility was added to determining the “Covered Period”. Additionally, there was an expansion of what qualifies as “Covered Expenses”. The definitions below were added:
o Operation Expenditures: software and cloud computing service payments used to facilitate, without limitation, business operations, service or product delivery, payroll, processing, billing, accounting, inventory and HR functions.
o Supplier Costs: payments to suppliers of goods that are essential to operations at the time made pursuant to an order or contract in effect prior to the covered period (or in effect at any time during the covered period if good are perishable).
o Property Damage: costs related to any public disturbances that occurred in 2020, to the extent not covered by insurance or other compensation.
o Worker Protection Costs: costs related to compliance with regulations issues by CDC, HHS, OSHA or any state or local government authority after the period beginning on March 1, 2020 and ending on the date when the national emergency declared by the president related to COVID-19 safety measures expires.
If you have any questions related to this, please do not hesitate to contact us for more information.