PPP Loan Forgiveness Application;
Why Small Business Owners Should
Wait to Apply for Loan Forgiveness

COVID-19 Business Update

You may be thinking that it is time to apply for forgiveness of your PPP loan. It seems many owners and managers of companies who received PPP loan proceeds are anxious to apply for forgiveness. Some are under the mistaken impression that there is a deadline to apply that is coming very soon. The deadline is, in fact, effectively 10 months after the end of the covered period which for most companies would be no earlier than February 2021. Others simply do not want their companies to be in debt.

Notwithstanding the temporary negative impact on a company’s balance sheet, we strongly encourage our clients to delay applying for forgiveness. In fact, we are currently suggesting that it makes more sense to wait until 2021 to apply. We believe that most borrowers would be wise to take their time with the forgiveness process. Many banks and lenders are holding off on processing forgiveness applications because they are waiting to see what will happen in Congress, and hoping for more guidance from the SBA.

We believe that Congress will save many small business owners from the headache of having to fill out lengthy forms. Currently, the HEALS Act, if passed by Congress, would allow borrowers with loans less than $2 million to apply for forgiveness without having to submit paperwork showing how the money was spent. Borrowers would simply be required to “certify” they spent the PPP funds on expenses deemed eligible under the program.

As CPAs, we are particularly concerned about the current position of the Internal Revenue Service who ruled that expenses paid with forgiven PPP loans will not be deductible. Congress specifically stated that the proceeds of the PPP loans, if forgiven, would be exempt from taxation. Such an exemption is pointless if related expenses cannot be deducted. It might as well have been taxable with related expenses being deductible. So while it is clear to a logical thinker that Congress intended this program to be nontaxable largess, the CARES Act was not explicit on the topic of deductibility of related expenses and, because the Act was rushed through Congress, the typical committee reports that would clarify congressional intent were not prepared.

We can’t really blame the IRS for this wrong ruling. Being part of the Executive Branch, the IRS does not make law. The IRS carries out the mandate of Congress by administering the law. The way the CARES Act was written it appears that the IRS believed had no choice but to rule in that manner but we believe that their position is wrong. We do hope that this matter will be clarified with corrective legislative action.

We have other reasons that we believe that delaying the forgiveness application will most likely be in your best interest and we will be happy to explain these matters to you in greater detail on the phone or in person. We do not charge for these consultations relating to any PPP matter. While there may be situations in cases of larger loans or complex situations requiring significant time commitments that we may need to charge for, at this stage, we are avoiding any additional billing beyond your regular retainers for PPP related matters.

As we strongly encourage you to wait to apply for forgiveness of the PPP loans, we equally encourage you to reach out to us for any questions, concerns or assistance that you may need in the process. Please don’t embark on this process yourself without at least talking to us first.

Stewart Robinson, CPA, MST, ABV, CFE

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.