IRS Releases Draft 2020 Form 1040 Instructions Overnight; SBA Releases PPP Notice for Public Comment

  


Jessica L. Jeane, J.D.
Director of Public Policy & Communications
October 24, 2020

The IRS released draft 2020 Form 1040 and 1040-SR Instructions overnight on October 23, which includes instructions for Schedules 1 through 3. Additionally, the U.S. Small Business Administration (SBA) has released, and is expected to formally publish, a Paycheck Protection Program (PPP) Notice for public comment on Monday, October 26. 

PPP

The PPP, enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, (P.L. 116-136), provided forgivable loans to eligible small businesses, certain non-profit organizations, veteran’s organizations, Tribal business concerns, independent contractors, and self-employed individuals adversely impacted by the COVID-19 pandemic. According to information posted on the Federal Register over the weekend, there will be a new SBA Form 3509 (for-profit borrowers) and Form 3510 (non-profit borrowers), which are labeled as questionnaires dealing with PPP “loan necessity.” Reportedly, according to an SBA spokesperson the forms “are for specific borrowers with PPP loans worth $2 million and above.”

The new form requirement regarding loan necessity for certain non-profit and for-profit borrowers is estimated by the SBA to apply only to 52,000 borrowers in total, which indicates, in line with the SBA spokesperson's comment, that these questionnaires are only applicable to top dollar loans. Under ordinary circumstances, the SBA would have likely issued similar screening questions ahead of issuing the loans, rather than on the backend. However, it appears that because of the emergency nature under which the Paycheck Protection Program was rolled out in response to the pandemic, this sort of information gathering by the SBA was not done ahead of loan issuance. Further revealing the type of loans to which these forms will likely apply, is that although the SBA, in consultation with Treasury, has stated that it reserves the right to audit any loan, it has only specifically noted its intent to review loans in excess of $2 million.

NOTE: Funds of a PPP loan are available for payroll costs, costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums, mortgage interest payments, rent payments, utility payments, interest payments on other debt incurred prior to February 15, 2020, and to refinance an eligible SBA Economic Injury Disaster Loan. Under section 1106(b) of the CARES Act, a loan may be entirely or partially forgiven, based on a 60 percent threshold, if the PPP borrower uses the proceeds for payrolls costs, payment of interest on a covered mortgage, payment on any covered rent obligation, and any covered utility payment.

PPP Loan Forgiveness

The SBA, in its Notice to be officially published on October 26, has also revealed its estimates of total PPP loan forgiveness applications and projected hourly burdens. Accordingly, PPP Loan Forgiveness Application SBA Form 3508, also known as the “longer” form, is expected to take approximately three hours. And the PPP Loan Forgiveness Application SBA Form 3508EZ, considered the “mid-level” form, is estimated to take approximately 20 minutes. Finally, the PPP Loan Forgiveness Application SBA Form 3508S, for borrowers with loans of $50,000 or less, is anticipated to take approximately 15 minutes.

PPP FAQs updated this month can be located here.

Meanwhile, Sen. Kevin Cramer (R-ND) touted his bipartisan PPP loan forgiveness bill on October 24, which has 30 Republican and Democratic cosponsors in the Senate. The measure would offer streamlined forgiveness of PPP loans of up to $150,000. The Paycheck Protection Small Business Forgiveness Act is endorsed by over 200 businesses and associations. Legislative text of the measure can be located here.

While prospects of PPP-related legislation being enacted prior to the November election appear bleak, there is undoubtedly large, bipartisan support on Capitol Hill for additional PPP relief.

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