Paycheck Protection Program Loan Forgiveness Considerations

So You Received a PPP Loan: What Next?

If you received a Paycheck Protection Program (PPP) loan, it’s imperative to consider the tax and accounting implications around the timing of when you apply for loan forgiveness. If you have not yet done so, we suggest discussing these implications and timing with your advisors. Here are some of the items to consider.

Income Tax Considerations

Based on current IRS guidance, expenses paid with Paycheck Protection Program loans are non-deductible to the extent of loan forgiveness. If the loan is forgiven in the same year that the expenses are paid, the expenses are clearly non-deductible in that year. However, there is uncertainty regarding how this applies if, as of the end of the tax year, the SBA has not approved of a borrower’s loan forgiveness or the borrower has not applied for forgiveness.

Unfortunately, while there has been discussion in Congress about changing the law to permit these expenses to be deductible, we do not know if or when such legislation would be enacted.
Since there may be tax implications from the timing of your PPP loan forgiveness application, we suggest having a discussion with your tax advisor prior to submitting the application to your lender.

Financial Statement Considerations

For entities that issue financial statements, there are accounting issues to consider regarding how the PPP loan is accounted for, including when the loan should be reflected as a liability and when loan forgiveness income is recognized.

To determine the proper accounting treatment, an entity’s specific facts and circumstances should be considered. We suggest that you discuss this with your advisor now.

Disclaimer: The information contained in this communication, including attachments and enclosures, is not intended to be a complete analysis of all related issues. Nor is it sufficient to avoid tax-related penalties. It has been prepared for informational purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and Perkins & Company, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.