|It’s finally time to apply for your Paycheck Protection Program (PPP) Loan Forgiveness!|
We now have guidance from the IRS regarding the deductibility of the expenses paid with PPP proceeds: Expenses are not deductible in 2020 if the borrower satisfies all requirements and expects to receive full forgiveness of the PPP loan no matter when the borrower applies for or receives forgiveness.
There is a safe harbor for certain PPP loan borrowers which allows the borrower to claim the full or partial deduction of the expenses related to the PPP loan if the borrower does not expect to receive full forgiveness of the loan or if the borrower expects to receive forgiveness, but is denied in whole or in part. This also applies if the borrower does not plan on requesting forgiveness of the loan at all and recognizes the PPP loan as income.
We highly suggest you complete the PPP Loan Forgiveness Application and gather your supporting documentation to make the forgiveness determination. please use the attached AICPA Loan Forgiveness Form Decision Tree Tool to assist you in deciding which application to complete. Stay in touch with your lender through the forgiveness application process to ensure you comply with their requirements. most lenders are accepting applications now and a few borrowers have already received forgiveness. There are 3 application forms available for loan forgiveness listed below. The different forgiveness application versions are Form 3508S, 3508EZ, and 3508.
Form 3508S (2 Pages) – PPP loans less than $50,000
Instructions for Form 3508S
Form 3508EZ (3 pages) – Shorter version of Form 3508
Instructions for Form 3508EZ
Form 3508 (5 pages) – PPP loans greater than $50,000 and for borrowers who do
not qualify to use forms 3508EZ or 3508S.
Instructions for Form 3508
Furthermore, there are 2 forms which have been announced for borrowers with a loan of $2 million or above and who are subject to automatic audit. These are Forms 3509 and 3510 which are not currently available on the SBA website, but your lender should have them.
The Small Business Administration (SBA) requires the borrower to maintain documentation supporting the application for 6 years after the date the loan is forgiven or paid in full. This means all borrowers currently should be retaining all receipts, leases, bank statements, payroll records and proof of payment to support their PPP expenses.
If the borrower chooses not to complete a forgiveness application, loan payments will begin in 10 months from end of the 8-week or 24-week period it took to spend the PPP loan proceeds. The lender has 60 days to process the forgiveness application and the SBA has 90 days to do so, but meanwhile the lender must provide payment relief until forgiveness is settled.
Please contact us if you need guidance on your application and/or to estimate your income tax burden. It has been suggested that obtaining assistance from a knowledgeable professional when completing your application may reduce your risk of being selected for audit.
theKFORDgroup team is ready to assist you with your tax questions. Give us a call at (210)340-8351.