PPP: IRS and SBA Issue New Guidance

Like most new government programs, the PPP has been followed by a stream of clarifying guidance from the relevant federal agencies. Whether you have such loans already or are seeking to get them, you should be aware of the details.

Tax Responsibilities

The IRS has clarified that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to the CARES Act. Also, the income associated with the loan forgiveness is excluded from gross income for purposes of the IRC. Further details are available in IRS Notice 2020-32.

Disbursement Rules

The SBA has issued guidance that answers questions about the PPP loans. A key question for businesses is whether a borrower can take multiple draws from a PPP loan and thereby delay the start of the eight-week covered period. No, says the SBA. The lender must make a one-time full disbursement of the PPP loan within 10 calendar days of loan approval. For the purposes of this rule, a loan is considered approved when the loan is assigned a loan number by the SBA. Further details are available in Docket Number SBA-2020-0022.

Corporate Group Loans

The SBA addresses an issue much covered in the press: Can a single corporate group receive unlimited PPP loans? The answer is no. Notes the SBA: "To preserve the limited resources available to the PPP program, and in light of the previous lapse of PPP appropriations and the high demand for PPP loans, businesses that are part of a single corporate group shall in no event receive more than $20 million of PPP loans in the aggregate. For purposes of this limit, businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent." Further details are available in Docket Number SBA-2020-0023.

Businesses should note that guidance is subject to change, and for the latest information, they should stay in touch with financial professionals.