Loan Forgiveness

[Corduroy Frog]

My first post on my new computer with a new I.P. address.  This is Edsel from previous posts - not sure how to register with the same name.

The forum for the CoronaVirus topics has slowed down.  I would like to ask a question where others can respond.  Monitors can move the thread if they so desire.

Subject:  I'm being tormented to death by a few Sch C customers who want me to apply for loan forgiveness.  In a couple cases, I didn't even assist with the application - it was done entirely by their bank.  And now the bank doesn't want to file for forgiveness.

I was told (and it was all over the news media a couple months ago) that a single Sch C filer with loans under $150,000 would be automatically forgiven without having to apply.  Can anyone point to a citation that would confirm this?  I've got a couple that I will have to do, but I don't want to fool with those for which I had nothing to do with...

Thanks in advance - Ron Jordan

[Lynn EA USTCP in Louisiana]

The banking lobby has pushed for forgiveness of loans under $150,000 but that bill languishes.  My bank just sent notices to its customers stating that they are currently entertaining forgiveness applications  only for loans over $150,000.  I have no doubt the banks are waiting until further action on their bill before asking those with. Loans under $150,000 to submit forgiveness applications. 

[Lion EA]

What Lynn said. "Languishes."

My bank has only gotten as far as sending us all a video re what documentation to gather, what to do WHEN they start accepting forgiveness applications. They tell us to get ready, but to WAIT.

Although, if your clients were on an eight-week window and DO qualify for 100% forgiveness AND are willing to pay you for your services AND you have time now, go ahead. I'm not touching those applications until after 15 October, even my own.

[Lee B]

Just had my fourth online  CPE class about PPP Forgiveness on Tuesday, since the Treasury and the SBA keep moving the goalposts.

Many banks have yet to start accepting applications. The probable reason that banks are dragging their feet, is that most banks don't have the staff and expertise

to process these applications, so they are subcontracting out the processing of these applications to large CPA Firms.

If the "automatic forgiveness"for loans less than $ 150k ever goes thru it would save the banks a lot of money, which would go straight to their bottom line.

[JohnH]

->  Subject:  I'm being tormented to death by a few Sch C customers who want me to apply for loan forgiveness.  In a couple cases, I didn't even assist with the application - it was done entirely by their bank.  And now the bank doesn't want to file for forgiveness. <-

Ron, when my clients ask me about applying for loan forgiveness at this stage, I just tell them it's too soon because SBA keeps moving the goal posts.  I'll let them know when it's time.  There are one or two who ask again, and I just tell them nothing has changed since our last conversation. I guess it all boils down to whether we run our practice or our clients run it.  

Besides, they've already received the money, derived the benefit,  and the loan forgiveness is just an after-event formality.  I've even wondered if it might be a good strategy for some cash-basis taxpayers to wait until after the end of 2020 to file for forgiveness, depending upon their business circumstances. (Still pondering this one) 

 

[Corduroy Frog]

John, I'm treating the proceeds as cost reimbursements rather than revenue.  I believe the current application is that you cannot deduct an expense that has been paid from tax-exempt funds, so waiting until 2021 accomplishes nothing.  You're right about moving the goal posts.  Those who are driving the train don't know what they're dragging around.

[JohnH]

38 minutes ago, Corduroy Frog said:

John, I'm treating the proceeds as cost reimbursements rather than revenue.  I believe the current application is that you cannot deduct an expense that has been paid from tax-exempt funds, so waiting until 2021 accomplishes nothing.  You're right about moving the goal posts.  Those who are driving the train don't know what they're dragging around.

Ron: Here's what I've been pondering. Offered for critique or criticism.

From an accounting standpoint, the funds are a loan from the bank, booked in the same manner as any other loan. So as long as that status remains, this is a loan payable on the books and the expenses are tax deductible. Forgiveness isn't guaranteed, so it's perfectly logical to retain it as a loan until forgiveness is certain.

Now if a taxpayer requests & receives forgiveness in the same year and the bank relies on the SBA reimbursement to forgive the loan, then the offsetting entry would negate the expense as you have described.  But if the taxpayer waits until Jan 2021 to request forgiveness, then the adjustment to income (or expense, as you see fit), would occur in 2021.  Nothing is certain until the loan is actually forgiven.  Depending upon the taxpayer's circumstances, it might be desirable to shift the income into 2021.  (I could spin out a few scenarios where this would be applicable but that isn't relevant to this conversation)

Now it's possible IRS may offer guidance on this before the end of the year.  But it's a bit of an esoteric issue so they may not pay it much attention.  In any event, this is my thinking right now given my understanding of the way this timing would impact a cash-basis taxpayer.  It is somewhat similar to the tax treatment of a medical expense paid in 2020 and then reimbursed in 2021, at least in concept.