The second round of PPP funding is just over a week old. Experts predict that funding will be exhausted in the next couple of days. Approximately 3 million small businesses around the U.S. have received PPP loans. As the dust settles on a bit of a gold rush for lenders and perhaps some breathing room for small businesses, everyone’s attention is, or should be, turning to the forgiveness aspect of these loans. As we talk about that, just like during the PPP loan frenzy, the SBA does and will continue to offer “guidance” as to how things will work towards forgiving these loans.

Was Your PPP Loan Actually “Necessary”?

This article from Forbes delves into which businesses actually needed one of these loans. There have been accounts of fairly large, well-capitalized companies — even publicly traded companies — who have applied for and received a PPP loan. Perhaps the most public of these instances was ShakeShack. Who was one of the first, if not the first, to “give back” their PPP loan.

But the Forbes article goes a bit deeper, and even brings up the possibility that Taking an Unnecessary PPP Loan May Result in Criminal Consequences. The author notes that “The PPP was intended to help enable small businesses and professionals to keep their employees on payroll, and to pay utilities, rent, interest, health insurance and pension contributions.” When a business applies for, receives, accepts, and then spends the funds from a PPP loan, the federal government has indicated that the business could be audited to determine necessity of the funding.

Once a business is audited, Forbes notes that, “if the loan is found not to be “necessary,” criminal fines of up to $1,000,000 and imprisonment for up to thirty years can be imposed.”

Have You Laid Off Employees?

One of the main tenets of the PPP, also mentioned above, was “to keep employees on payroll”. However, many businesses had to make the decision to lay off employees either before the PPP was passed. Or before they could get a PPP loan. Due to the massive competition for the $350 billion in initial PPP funding. The intent of the PPP was that such businesses would rehire those employees and keep them on payroll. Satisfying the initial intent of the legislation.

The latest guidance from the SBA gives the business some relief if employees decline an offer to return to work. According to this article from the Journal of Accountancy, the business “can exclude laid-off employees from loan forgiveness reduction calculations if the employees turn down a written offer to be rehired.” That’s a benefit for the business; however, there is also a consequence for the employee who has been laid off: “employees who reject offers of reemployment may find themselves ineligible to continue receiving unemployment benefits.”

Such requirements are commonplace when any business or individual receives taxpayer funds in any form. Both the business and the individual must follow the rules laid out by the governing body. In this case, the SBA.

Receiving A PPP Loan Will Impact Your Business Taxes

In “normal” times, businesses take business tax deductions for payroll, rents, and other expenses according to IRS tax regulations. However, once a business takes and spends the funds from a PPP loan, the business will NOT get to take the same deductions for those costs that are covered by the loan.

As this article from Barron’s puts it, very clearly, if participants in the program have loans forgiven they may not claim the usual business tax deductions for payroll, rents, and other expenses covered by the loan…prevents a double tax benefit” and is consistent with past guidance.

Free PPP Forgiveness Calculator and Guide

We’ve created a simple guide, based on the most up to date information from the SBA. You can download the guide and get the calculator in either Microsoft Excel or Google Sheets format. The SBA also updates their “Frequently Asked Questions” PDF here.