PPP Loan – Forgive(ness) and Forget

The President signed into law on Friday June 5th the Paycheck Protection Program Flexibility Act (PPPFA in case you needed another acronym to keep track of) which eased the forgiveness requirements for PPP loans. This will come as a relief to many business owners who would otherwise have been in a position where they may have had to pay back a portion of their loan, and stress about the calculation to determine if they had met the requirements for loan forgiveness.

The PPPFA made the following changes:

  • Percentage of loan funds required to be used for payroll reduced to 60% down from 75% in the initial guidance
  • Funds allowed to be used over a period of 24 weeks compared to 8 initially
  • Loans that are not forgiven have a 5 year repayment period at 1% interest compared to 2 years.
  • Safe harbor rehire date moved to December 31, 2020, formerly June 30th.

So what’s next?

At a minimum, the SBA’s loan forgiveness application will need to be revised to incorporate these changes. Lenders will once again need to adapt to the constantly moving target that is the PPP Loan program. Updates in these areas are pending.

Businesses will need to re-adjust their calculations based on the new guidelines, and once their 24 week period has ended submit applications for forgiveness and supporting documents required by their lender. These changes will most certainly reduce the stress businesses felt from the original 75% threshold, and stretching the use of funds over 24 weeks will make the entire proceeds of the loan forgivable to the vast majority of businesses.

Remaining question:

Will the PPP Loan funds that are forgiven be taxable?

From the beginning, the IRS has held that the forgiven portion of the PPP loans would not be taxable.


In Notice 2020-32 the IRS has taken that position that no deduction will be allowed for the expenses resulting in forgiveness of the PPP loan from the CARES Act. They also uphold that the income associated with forgiveness of the loans are excluded from gross income for IRS purposes.

This essentially is the same outcome as if the income from the loan forgiveness was taxable. This is a disappointing ruling from the IRS for business owners who assumed based on the initial guidelines and information that there would not be any unfavorable tax implications from receiving funds from PPP loans.

The AICPA and other organizations have supported bills that would make the PPP expenses deductible, but as of now there has been no changes made from the previous ruling made by the IRS. From a 2020 tax planning standpoint, it makes sense to assume the current ruling will stand. If their is a favorable change that comes, maybe it will helps us all forget this roller coaster ride called the PPP loan program.

Need advise on how this change impacts your business?

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-Nick Liguori, CPA