The Small Business Administration issued a second interim final regulation late in the evening of May 22, 2020, this one entitled “Business Loan Program Temporary Changes; Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities.”[1]

The SBA’s potential review of loans has been a topic of discussion since the SBA released Q&A 31 in the “Paycheck Protection Program Loans Frequently Asked Questions (FAQs),” where the agency indicated concern over loans taken by various public companies, followed up by Q&A 39 where the agency announced:

To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.[2]

This particular IFR was issued to describe the review process and related responsibilities for the borrower and the lender.

The SBA continued with the release of guidance late in the evening, with a release around 10:00 pm EDT on May 23.

A week after issuing the application form for PPP loan forgiveness, the Small Business Administration released an interim final rule covering the forgiveness process.[1] The IFR provides the formal guidance to go with the application package.

The Small Business Administration has issued interim final rules clarifying how foreign affiliates affect a borrower’s qualification to obtain a Payroll Protection Program (PPP) loan.[1]

The IFR deals with whether an applicant must count employees of foreign affiliates who will generally have residences outside the United States when determining if the entity has more than 500 employees and thus is not eligible for a PPP loan. The SBA concludes that the answer will be yes if the foreign entity fits the definitions found in the SBA’s own affiliation rules.

The SBA has released the “Paycheck Protection Program Loan Forgiveness Application”[1] that contains information on the PPP forgiveness program.

The application consists of:

• The PPP Loan Forgiveness Calculation Form;

• PPP Schedule A;

• The PPP Schedule A Worksheet; and

• The (optional) PPP Borrower Demographic Information Form.

The SBA is now offering one more extension of time to repay a loan under the safe harbor that was originally set at May 7 in third iteration of the PPP loan FAQ issued on May 13.[1] Now the SBA has delayed the date for repayment to avoid a question regarding the certification of the need for the loan to May 18th. Of interest, though, is that this has been issued on the same day the SBA issued guidance that provided the question would not be asked on loans of less than $2 million, as well as providing a later safe harbor for repaying the loan if the SBA determines there was no need for the loan.

The one major reason left to repay the loan would be to obtain the right to claim the employee retention credit in the future, assuming the IRS will move the date to repay the loan and regain the right to claim the credit to May 18.

The IRS has released guidance in Notice 2020-29 that allows for additional flexibility for §125 cafeteria plans given the COVID-19 national emergency that was declared on March 13.[1] The guidance deals with three general issues:

• Plans granting employees the right to make or modify elections mid-year in the §125 plan;

• Allowing participants to use unused amounts deferred to the plan remaining at the end of 2019 in 2020; and

• Allowing retroactive relief to January 1, 2020 for issues related to high deductible health plans and telepath services.

Following a letter written by Senator Chuck Grassley (R-IA, Chair Senate Finance Committee), Rep. Richard Neal (D-MA, Chair House Ways & Means Committee) and Senator Ron Wyden (D-OR, Ranking Member Senate Finance Committee) that was critical of the IRS FAQ on the Employee Retention Credit stating that employers could not claim the credit for paying health care benefits for employees on furlough, the IRS has now reversed course.[1]

The long-awaited proposed regulations on the effect of IRC §67(g) on trusts and estates have now been issued by the IRS.[1] The big item in the proposed regulations is an explanation of the treatment of excess deductions on termination under IRC §642(h)(2) after the Tax Cuts and Jobs Act provided, in IRC §67(g), that miscellaneous itemized deductions would no longer be deductible on individual income tax returns.

Existing Reg. §1.642(h)-1 provided that such deductions are “allowed only in computing taxable income and must be taken into account in computing the items of tax preference of beneficiaries; it is not allowed in computing adjusted gross income.” This holding led to such deductions being treated as miscellaneous itemized deductions prior to the TCJA addition of §67(g).

As the SBA has advised borrowers who don’t want to have to worry about being asked about whether their certification that their loan application was necessary was made in good faith to repay those loans by May 7 (recently extended to May 14), a question has arisen regarding the employee retention credit (ERC).

An employer who receives a PPP loan is not eligible to claim the employee retention credit per CARES Act §2301(g). If an employer decides to return its PPP loan under the SBA’s safe harbor repayment program, are they still ineligible for the ERC since they did have a PPP loan, even though they have now repaid it?

In now current Question 80 on the IRS’s page for “COVID-19-Related Employee Retention Credits: Interaction with Other Credit and Relief Provisions FAQs,”[1] the answer is that employers who return the funds by May 7 will be able to claim the ERC if otherwise eligible.

The IRS has added information to their “Economic Impact Payment Information Center”[1] on their website dealing with payments made to deceased taxpayers.

Shortly after the IRS began issuing economic impact payments (EIP) to taxpayers, reports began coming up of amounts being paid to deceased taxpayers. While the Treasury Secretary indicated that such payments were made in error and should be returned to the government, no specific guidance was issued by the IRS until May 6.

The new guidance both makes clear the IRS position on when the payment will need to be returned and also the mechanics of returning the payment. The May 6 changes also contain information about EIPs related to resident aliens and incarcerated individuals.

Key members of the Congressional tax-writing committees have, for the second straight day, sent a letter to Treasury Secretary Mnuchin, voicing their displeasure with IRS guidance on a CARES Act issue and requesting that the agency reverse this guidance.[1] This time the letter, signed by Senate Finance Committee Chair Chuck Grassley (R-IA), Ranking Member Ron Wyden (D-OR) and House Ways & Means Committee Chair Richard Neal (D-MA), raises issues with the guidance in Notice 2020-23.

Notice 2020-23 provided that amounts expended that were used to justify the forgiveness of a PPP loan would not be deductible by the taxpayer in computing federal taxable income. The Treasury Secretary had defended that guidance specifically in an interview with Fox News on May 4. Tax Analysts, in a May 5, 2020 story, provided the following quotes from the Fox News Interview:

“The money coming in the PPP is not taxable,” Mnuchin said May 4 in an interview on Fox Business. “So if the money that's coming is not taxable, you can't double dip.”

…

Mnuchin said the IRS guidance is correct, adding, “I have reviewed this personally. This is basically Tax 101.”[2]

Another interim final regulation on the PPP loan program has been issued by the Small Business Administration.[1] The new guidance deals with non-discrimination rules and student workers.