this changes everything

https://www.bloomberg.com/news/articles ... an-program

Unless I misunderstood, the Senate passed the House bill without any changes. I did see this little tid bit in the article:

The House bill creates a “cliff,” Collins said in a statement. The current PPP program allows partial loan forgiveness if a company uses less than 75% of a loan for payroll, but the House bill appears to state that none of the loan would be forgiven if the 60% threshold isn’t met.

“Instead, the employer is saddled with a debt for the entire amount, and no portion of the loan is forgiven or converted to a grant,” Collins said.

Senate Small Business Chairman Marco Rubio last week sought guidance from Treasury on whether that issue can be addressed through regulation. Treasury and the SBA haven’t responded to requests for comment.

https://www.bloomberg.com/news/articles/2020-06-03/senate-passes-changes-to-small-business-ppp-loan-program

Unless I misunderstood, the Senate passed the House bill without any changes. I did see this little tid bit in the article:

The House bill creates a “cliff,” Collins said in a statement. The current PPP program allows partial loan forgiveness if a company uses less than 75% of a loan for payroll, but the House bill appears to state that none of the loan would be forgiven if the 60% threshold isn’t met.

“Instead, the employer is saddled with a debt for the entire amount, and no portion of the loan is forgiven or converted to a grant,” Collins said.

Senate Small Business Chairman Marco Rubio last week sought guidance from Treasury on whether that issue can be addressed through regulation. Treasury and the SBA haven’t responded to requests for comment.

So now PPP borrowers will have 24 weeks to use the loan. There is a new requirement though is that at least 60% of the loan has to be used on payroll costs, otherwise none of the loan will be forgiven.

Did I read it correctly?

I don't see anythin in the bill that says anything about the loan not being forgiven at all if the percentages aren't met. Can someone quote that part?

(8) Limitation on forgiveness.--To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.''

Tony Nitti weighs in about the new legislation and discusses the 60%:

https://www.forbes.com/sites/anthonynitti/2020/06/03/congress-agrees-on-favorable-changes-to-paycheck-protection-loans-what-does-it-mean-for-borrowers/#550a7d6e66fd

"The IRS had its fun as well. The CARES Act specifically provides when a borrower has a PPP loan forgiven, the forgiveness does not generate taxable income. Over a month later, well after many businesses had obtained their loans, the Service (correctly) applied the laws of the Internal Revenue Code to state that while the forgiveness may not be taxable, any expenses paid with forgiven funds would NOT be deductible. A few members of Congress briefly put up a fight, but once that fizzled, borrowers were left with an after-tax return on the loan that was much different than what they had planned."

I have not heard of any new development on this. But Tony Nitti talked like it has been a foregone conclusion that expenses paid with forgiven funds will not be deductible. Is that really the case?

See post #9.

The bill in post #9 does not appear to have moved at all since being introduced a month ago. Does that mean we should be working on the basis that it will die?

See post #9.

So it is still at the "wait and see" stage?

The bill in post #9 does not appear to have moved at all since being introduced a month ago. Does that mean we should be working on the basis that it will die?

Moving or not, we will still hear whether the bill passes or not, is it right? Or can a bill just 'die' with no outcome at all?

Oh, I'm sure we will. However, for my one client with a PPP loan, I am telling him that it is not a done deal and he understands that.

Oh, I'm sure we will. However, for my one client with a PPP loan, I am telling him that it is not a done deal and he understands that.

Same here. I have been getting questions from my clients on this. I just tell them we are still waiting for the result.

Passed Senate, waiting for Pres to sign....and it does change everything!

Wow, I was just working up some figures for a client who might be getting a PPP loan for about $90,000. I was about to let her know that recent guidance will make her payroll costs relative to that non-deductible and therefore her potential tax liability a considerable amount higher. Looks like there is a possibility of that changing. I wish they'd get all this sorted out, signed and sealed. This client may just want to forego the PPP if her tax bill will be higher. This is just crazy making.

Why would (as you have advised your client) her tax bill be higher?
The PPP Loan is non-taxable.
If all or any part of the PPP Loan is forgiven - non taxable income.
True payroll & rent, utilities are not "double deducted".

And so that's how taxable income is increased! You don't get to deduct those expenses. Yes, you traded actual cash for them, but now you'll pay tax. So it's words. While not strictly 'taxable' income....non-deductible expenses equals the exact same thing. And that is not the intent of the Act...from what we know.

So Notice 2020-32 may have to be made obsolete or superseded?

FWIW, probably not much, I long ago posted my position on why this, posted from somewhere by taxtothebest, is not correct. "Over a month later, well after many businesses had obtained their loans, the Service (correctly) applied the laws of the Internal Revenue Code to state that while the forgiveness may not be taxable, any expenses paid with forgiven funds would NOT be deductible."

If that's from Nitti, there's a high likelihood I am wrong. But if someone finds my reasoning and posts it here, I'll re-evaluate.

And so that's how taxable income is increased! You don't get to deduct those expenses. Yes, you traded actual cash for them, but now you'll pay tax. So it's words. While not strictly 'taxable' income....non-deductible expenses equals the exact same thing. And that is not the intent of the Act...from what we know.

JR1 - give us an illustration - to explain - "so that's how taxable income is increased".

True payroll & rent, utilities are not "double deducted".

What does "double deducted" mean? I think action's client was only planning on taking a single deduction for these expenses, and then the IRS said she couldn't. Thus the increase in taxable income.

JR1 - give us an illustration - to explain - "so that's how taxable income is increased".

Here's an illustration:

Assume for this example that 2019 and 2020 income and expenses are exactly the same.

2019:
Income 100,000
Wages 60,000
Expenses 20,000
Profit 20,000 (taxable income)

2020:
Income 100,000
Wages 60,000
Expenses 20,000
Add-back 12,000 (estimated 9,230 wages at 52/8 plus 2,770 rent and other PPP qualified expenses)
Profit 32,000 (taxable income)

So by not being able to deduct the wages and other expenses which were covered by forgiven PPP money, this taxpayer's taxable income increased by that amount.

The problem with this is that the PPP program was designed for businesses who suffered a decline in income, necessitating the government to provide assistance in the form of a forgivable loan to continue operations. So let's see this 2020 example using figures which the PPP program was anticipating...namely no (or reduced) income for 2 months, and assistance provided to continue paying the same expenses for those two months:

2020:
Income 83,333
Wages 60,000
Expenses 20,000
Add-back 12,000 (estimated 9,230 wages at 52/8 plus 2,770 rent and other PPP qualified expenses)
Profit 15,333 (taxable income)

So a taxpayer who actually did lose income for two months and took advantage of the program received some relief from the PPP program. Their taxable income is still reduced, but not by the expenses covered by the program. Whereas the taxpayer who didn't suffer any loss of income will have more taxable income than normal due to the government paying two months of their expenses for them. Doesn't sound unreasonable to me.