Paycheck Protection Program SBA Loans (“PPP Loans”)

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Paycheck Protection Program SBA Loans (“PPP Loans”)

Freeman Law continues to provide Coronavirus-relief guidance.  For comprehensive guidance, check out our firm compendium on Coronavirus-relief guidance.

 

H.R. 748: Coronavirus Aid and Economic Security Act (“CARES Act”) Background. On March 27, 2020, President Trump signed into law H.R. 748, the Coronavirus Aid and Economic Security Act or the CARES Act, following a unanimous 96-0 vote in the U.S. senate and a voice-vote of approval in the House of Representatives. The $2 trillion coronavirus-relief legislation provides financial assistance to small businesses and taxpayers through a host of mechanisms, including through newly-established “advanced recovery rebates” and programs designed to encourage employee retention during the coronavirus epidemic. The Act relaxes the ability to withdraw funds and loans from certain qualified retirement plans without adverse tax consequences and establishes favorable small business loan programs, tax credits, and a number of amendments to the Internal Revenue Code of 1986, as amended (the “I.R.C.”). In addition, the economic stimulus Act retroactively amends several provisions of the Tax Cuts & Jobs Act of 2017 (the “TCJA”), including certain restrictions on net operating losses and carrybacks, excess-loss deductions, business-interest deductions, and bonus depreciation rules relating to qualified improvement property, among other changes.

 

Paycheck Protection Program SBA Loans (“PPP Loans”).

Summary. The CARES Act creates the Paycheck Protection Program (“PPP”), a new loan program to be administered through the U.S. Small Business Administration (“SBA”), and authorizes commitments for general business loans of up to $349 billion to be guaranteed by the SBA. The PPP is designed to provide loans of up to $10 million to qualifying small businesses in order to encourage employee retention during the coronavirus crisis by providing financial assistance with the payment of certain operational costs. If applicable requirements are met, part or all of the amount of the loan may be forgiven without giving rise to cancellation-of-indebtedness income for federal tax purposes.

Eligibility. Generally, businesses (including nonprofits) qualify if they have 500 or fewer employees, provided that the loans are made between February 15, 2020, through June 30, 2020. For these purposes, an employee means an individual employed on a full-time, part time, or other basis. More specifically, in addition to small business concerns, any business concern, nonprofit organization, veterans organization, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act is eligible to receive a covered loan if the business concern, nonprofit organization, veterans organization, or Tribal business concern employees not more than the greater of (i) 500 employees or (ii) if applicable, the size standard for number of employees established by the SBA for the applicable industry in which the entity or organization operates.

Maximum Loan Amount. Generally, the maximum loan amount is limited to the lesser of (i) the average total monthly payments by the applicant for payroll costs incurred during the 1- year period prior to the date on which the loan is made, multiplied by 2.5, or (ii) $10 million. However, if the applicant was not in business during the period beginning on February 15, 2019, and ending on June 30, 2019, the maximum loan amount is limited to the lesser of (i) the average total monthly payments by the applicant for payroll costs incurred during the period beginning on January 1, 2020, and ending February 29, 2020, multiplied by 2.5, or (ii) $10 million.

Allowable Uses. The recipient may use the loan proceeds to pay: (1) payroll costs; (2) costs related to the continuation of group health care benefits; (3) employee salaries, commissions, or similar compensations; (4) interest on mortgage obligations; (5) rent; (6) utilities; and (7) interest on debt obligations incurred prior to February 15, 2020.

Non-recourse. Generally, the loans will be non-recourse including against any individual shareholder, member, or partner if the loan is not repaid, provided such person uses the loan proceeds for purposes authorized under the Act.

No Personal Guarantee or Collateral. No personal guarantee is required for the loan nor is any collateral required.

Interest Rate. The interest rate cannot exceed 4%.

Payment Deferral. Generally, any payment (principal, interest, and fees) is deferred for “impacted borrowers” with PPP Loans for a period of not less than 6 months and not more than 1 year. For these purposes, “impacted borrowers” means a PPP Loan recipient that was in operation as of February 15, 2020, and has an application approved or pending approval on or after March 27, 2020.

No Prepayment Penalty. There is no prepayment penalty for any payment.

SBA Fee Waiver. The SBA will not charge a fee on a PPP Loan during the covered period.

Waiver of Requirement of Inability to Obtain Credit Elsewhere. During the covered period, the requirement that a small business concern be unable to obtain credit elsewhere is waived with respect to a covered loan under the PPP.

Certification. A borrower under the PPP must make a good-faith certification that:

Forgiveness of Loan Amounts. A loan amount may be forgiven in an amount equal to the sum of the following costs incurred and payments made in the “covered period,” which is the 8-week period beginning on the date of the origination of a covered loan (collectively, “Eligible Costs”):

Documentation Required. Note that the CARES Act specifically prohibits forgiveness of loan amounts without submission of required documentation to the lender that is servicing the covered loan. The required documentation for loan forgiveness treatment is as follows:

Limitations.

Application for Loan Forgiveness.

Non-Taxability of Loan Forgiveness. While the forgiveness or cancellation of indebtedness is generally taxable under the I.R.C., the Act specifically provides that such amounts forgiven with respect to an amount equal to the sum of the costs described above are excluded from gross income.

Authorized Lenders. Lenders that are authorized to extend loans under the SBA’s already-existing section 7(a) loan program are eligible to make loans under the SBA’s new PPP. The Act provides the SBA and Secretary of the Treasury with authority to extend authorization to make loans under the PPP to additional lenders who are determined to have the necessary qualifications to process, close, disburse and service loans made with the guarantee of the SBA.

 

For more resources, see:

Force Majeure and Coronavirus: “Act of God” or Breach of Contract?

U.S. Department of Labor Issues Guidance on Families First Coronavirus Response Act

Additional IRS Guidance on Coronavirus Tax Relief: New People First Initiative

TEXAS COMPTROLLER OFFERS ASSISTANCE TO TEXAS BUSINESSES DURING THE CORONAVIRUS OUTBREAK

Latest IRS Coronavirus Guidance on Deadlines

Speedy Trial Rights and the Coronavirus

Families First Coronavirus Response Act

The CARES Act’s Impact on the Tax Code’s Business Interest Deductions

A Fresh Start for Many? Economic Downturn Means an Upturn in Favorable Tax Settlements

 

Representation in Tax Audits & Appeals

Need assistance in managing the audit process? Freeman Law’s team of attorneys and dual-credentialed attorney-CPAs regularly represents taxpayers before the IRS and Texas Comptroller. Our team also provides tax return-related representations and helps taxpayers navigate state tax laws. Our Firm offers value-driven services and provides practical solutions to complex issues. Schedule a consultation or call (214) 984-3410 to discuss our tax representation services.

 

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