The Chairs of both Congressional tax writing committees (House Ways and Means Committee and Senate Finance Committee) and the Ranking Member of the Senate Finance Committee have sent a letter to Secretary of Treasury Mnuchin questioning the IRS’s position on the payment of health insurance benefits for employees no longer receiving payroll and the employee retention credit enacted as part of the CARES Act.[1]

The employee retention credit, found at Section 2301 of the CARES Act, provides employers who meet certain conditions a credit of up to 50% of amounts paid for certain payroll costs. The question the IRS sought to answer in the FAQ on the matter is whether an employer could claim this credit if it was not currently paying wages to the employee but continued to pay for the employee’s health insurance costs.

In its most recent addition to the questions and answers for the Payroll Protection Program loans,[1] the SBA has given some protection on forgiveness for an employer that attempts to rehire an employee if the employee declines the offer of employment.

Question 40 provides:

Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

The IRS has updated the FAQ on the procedures to fax Forms 1045 and 1139 under temporary procedures.[1]

The IRS has updated the initial question describing how the process has changed:

1. How does the process change from the normal hard copy mailing requirement?

Previously, these forms could be filed only via hard copy delivered through the USPS or by a private delivery service. There are well-established procedures for processing the hard copy forms in order to provide quick tentative refunds to taxpayers. A temporary procedure to accept these forms via fax permits us to make the relief in the CARES Act available to taxpayers before IRS processing centers are able to reopen. The procedures to process claims generally remain the same, except as noted in these FAQs. (updated April 30, 2020)

The IRS has now published the draft of the Form 941[1] to be used for the rest of 2020. The new form takes into account the changes made by the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act that added various types of payroll tax relief.

Specifically, the form adds lines to account for:

• Credit for Qualified Sick and Family Leave Wages;

• Employee Retention Credit; and

• Deferred Amount of the Employer Share of Social Security Tax.

The Small Business Administration has published yet another Interim Final Regulation for the PPP loan program.[1] While much of the document relates to issues of interest to non-bank lenders, one key piece of guidance was issued that limits the amount of loans for corporate groups.

The IRS has answered one of the key unanswered tax questions involving the PPP loan program, and the answer is one that taxpayers will not like. In Notice 2020-32[1] the IRS has provided that any otherwise deductible expenses that result in forgiveness of a PPP loan pursuant to Section 1106 of the CARES Act will not be deductible in computing the taxpayer’s income.

The Notice begins by pointing out that while Congress told us PPP loan forgiveness is not taxable income, they said nothing about deducting the expenses paid with such loan proceeds:

Neither section 1106(i) of the CARES Act nor any other provision of the CARES Act addresses whether deductions otherwise allowable under the Code for payments of eligible section 1106 expenses by a recipient of a covered loan are allowed if the covered loan is subsequently forgiven under section 1106(b) of the CARES Act as a result of the payment of those expenses. This Notice addresses the effect of covered loan forgiveness on the deductibility of payments of eligible section 1106 expenses.[2]

The IRS and U.S. Department of Labor have issued a notice on relief for certain timeframes for employee benefit plans, participants and beneficiaries related to the COVID-19 emergency.[1]

The agencies describe the need for such relief as follows:

As a result of the National Emergency, participants and beneficiaries covered by group health plans, disability or other employee welfare benefit plans, and employee pension benefit plans may encounter problems in exercising their health coverage portability and continuation coverage rights, or in filing or perfecting their benefit claims. Recognizing the numerous challenges participants and beneficiaries already face as a result of the National Emergency, it is important that the Employee Benefits Security Administration, Department of Labor, Internal Revenue Service, and Department of the Treasury (the Agencies) take steps to minimize the possibility of individuals losing benefits because of a failure to comply with certain preestablished timeframes. Similarly, the Agencies recognize that affected group health plans may have difficulty in complying with certain notice obligations.[2]

The SBA continues to slowly add questions to the frequently asked questions on the Payroll Protection Program (PPP) loans,[1] in this case giving guidance on what happens if a business had a change of ownership after February 15, 2020.

The IRS has added a new question to the agency’s set of frequently asked questions on the extension of filing and other deadlines to address the issue of the deadline to file with the United States Tax Court.[1]

In Notice 2020-23 the IRS extended most due dates for items falling due between April 1, 2020 and July 14, 2020 to July 15, 2020. That extension of time included filings with the United States Tax Court. However, the United States Tax Court also has its own relief rule, outlined in the case of Guralnik v. Commissioner, 146 TC 230 (2016), that applies when the clerk’s office is closed (in that case due to a snow emergency).

After Treasury Secretary Mnuchin initially mentioned the issue in an interview with CNBC[1] on April 28, the Treasury Department posted a statement by the Treasury Secretary and Small Business Administration (SBA) Administrator Jovita Carranza on a process for the review of Payroll Protection Program (PPP) loans.[2]

The CNBC article quoted the Treasury Secretary as stating that all PPP loans in excess of $2 million would be subjected to a full review of the loan by the SBA. Later in the day, the Wall Street Journal published a story on its website citing their interview with the Treasury Secretary where he added that smaller loans will be spot checked by the agency as well.[3]

The latest addition to the frequently asked questions for the Payroll Protection Program loans[1] is short, but it clarifies that the warning found in question 31 is not just limited to public companies. Given that the agency is reportedly working on guidance for loan forgiveness, this may mean that information on liquidity and access to credit may become part of the information requested of all applying for forgiveness.

The SBA continues to add to the frequently asked questions for payroll protection program loans, adding a new question 36 regarding the 500-employee threshold for PPP loans under the CARES Act.[1]

The Small Business Administration (SBA) has released a seven-page PDF giving details on exactly how to compute the maximum Payroll Protection Program (PPP) loan amounts for various entity types.[1] The details are being released days before the SBA again opens up to accepting new PPP loan applications from banks for approval.

The document does come with a footnote that states:

This document does not carry the force and effect of law independent of the statute and regulations on which it is based.

But the document does provide the following assurance:

Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules. The U.S. government will not challenge lender PPP actions that conform to this guidance and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time.

So the document is best viewed as a “safe harbor” that can be used to escape potential scrutiny, but not as proof that a loan already approved was computed incorrectly. Presumably Treasury has taken this position in recognition of the fact that this guidance came out 21 days after the loan program had started and after the program had already used up the entirety of its first funding level.

Just before the weekend, the SBA added four additional questions (numbers 32-35 for those keeping count) to the Paycheck Protection Program Loans Frequently Asked Questions document on the SBA CARES Act website.[1] The four questions and answers deal with housing allowances, how to determine if an employee’s principal place of residence is in the United States and how the PPP program applies to agriculture.

This is the first addition to this list on the website since the SBA published an interim final rule allowing for guidance to appear on the SBA’s website.

Just prior to the President’s signing of the bill adding additional funding to the PPP loan program, the SBA issued yet another set of Interim Final Rules, this set dealing with the eligibility of certain businesses to obtain such a loan, impact of ESOPs on affiliation rules, guidance for a business in bankruptcy, formalizing the May 7 repayment safe harbor first discussed in the April 23 addition of Q&A 31 to the PPP FAQ by the SBA and authorizing additional guidance to be posted directly on the SBA website.[1]

Following the furor over PPP loans being given to certain public companies and the tweets of Senator Marco Rubio[1] pointing towards the certification that he indicated required a showing of need to receive a PPP loan, the SBA has added a new question to their FAQ on PPP loans.[2]

The IRS has issued additional guidance related to a problem Connecticut homeowners had with deteriorating concrete foundations due to pyrrhotite in the concrete mixture in Announcement 2020-5.[1]