On December 21, 2020 Congress passed the new Budget Act, and on December 27, 2020 President Trump signed it into law. Beginning next week all of our 1040 In Depth and Federal Tax Update courses will discuss the elements of the Bill that affect 2020 and 2021 Federal tax returns.
Until then, the burning question on everyone’s mind is what about PPP loan changes. Once again, we have noted that our industry and competitors are ignoring the changes for loans under $150,000, focusing instead on big stuff-clearly none of them actually do returns! I was reading an article from another company this morning titled “The 6 Big Things from the Bill” and it never once even mentioned loan forgiveness!
Well here you go, here are the PPP rules as a result of the new law signed 12/27/2020. The Bill is 5,593 pages long, and impossible to find stuff, so I will give you the PDF page number for guidance. Sec. 276 on page 2004 begins the guidance with:
- No PPP loan forgiven amount is included in gross income as debt forgiveness and
- No deduction is disallowed, no tax attribute reduced and no basis increase denied for the forgiven amounts. The amounts will be treated (for flow-through entities) as if they were municipal bond income and thus increase basis.
- The above rules apply to PPP loans from before the new act and to new PPP loans after the act, without regard to the date forgiven.
- There are no dollar limits- these rules apply to all loans.
- On Page 2009-2010 the new law states further that Eidl advances will not reduce the maximum amount of PPP loan forgiveness.
- On Pages 2043-2044 non-payroll costs are expanded to include many other things like computer costs, some inventory, human resources, protective equipment, etc.
- Section 307 on Page 2055 now directs the SBA, within 24 days from December 27, 2020 to design a new 1-page form for PPP loan forgiveness when the loan amount is less than $150,000. The new rules apply to pre-existing loans (even if forgiven) and new loans. The 1-page forgiveness application requires:
- A description of number of employees able to retain because of the loan,
- The estimated amount of the loan spent on payroll costs,
- The total loan amount, and
- Attestation by applicant to accuracy and compliance.
- The lender may not require additional documentation.
So in summary, loans under $150,000 are not taxable, there is no requirement to reduce expenses, and they appear to be fully forgivable!