The latest pandemic relief act has among its aims correcting the missteps of previous Paycheck Protection Program (PPP) loans. The bill expands deductions, adds a “necessity list” and caps the size of businesses that can justify the need for the loan. Experts say it also favors some industries over others yet simplifies and expands loan forgiveness.

“Not the automatic forgiveness many were hoping for, but it is a positive change,” said Lawrence Pon, a CPA and advisor in Redwood City, Calif. “The Small Business Administration is supposed to issue the new forms within 24 days of enactment of the new law. We’ve been telling the borrowers to wait on applying for forgiveness. Those that already applied for forgiveness may need to review their applications to see if they need to amend.”

The bill serves as an example of how ongoing, adaptable review by a team of professionals is especially important for business-owning clients who seek pandemic-relief loans. The concept is a good one to bear in mind if the pandemic continues and even more business-relief programs are created down the road.

First, the new provisions intensify applicants’ burden of proof of need after the previous PPP loan program sometimes garnered headlines with loans to large, well-heeled companies. Clients and advisors need to determine if the funds are “truly going to allow you to reach profitability during the next 12 months,” said Brian Weiner, managing partner at Audent Family Wealth Advisors in Los Angeles.

“If it doesn’t ... consider alternative options,” he said. “Look at the necessity provisions to see if you qualify and get in touch with your bank early to determine their process for administering the loan.” Weiner also stressed the need to monitor the speed of a turnaround for applications.

Streamlining the application process for loan forgiveness to one page “affects more than four million PPP loans and greatly simplifies the process of obtaining forgiveness. This is great news for those borrowers,” said Jake McDonald, director at CBIZ MHM in Plymouth Meeting, Pa.

Yet “there are continuing challenges to processing forgiveness,” added Daniel Morris, a CPA and senior partner at Morris + D’Angelo CPAs in San Jose, Calif. These challenges can also possibly raise audit questions.

Given potential risks, bringing other professionals into the PPP process is smart. Tax considerations are an obvious area for extra help.

“Tax professionals are experts at complex forms and know how to prepare packages that support the loan forgiveness. This process is very similar to representing a taxpayer in an IRS audit,” Pon said. “Most bank officers will need help [from tax professionals] to prepare these packages.”

For example, the new bill reverses the previous IRS position that expenses used to justify PPP loan forgiveness, such as payroll, were not deductible. The new bill makes it clear that these expenses are deductible in the year incurred. “This conversion from non-deductible to deductible will change year-end tax planning significantly,” Morris warned. “Remain nimble. File extensions and prepay estimates based on the worst news.” 

“It’s extremely important that you work with a tax professional intimately familiar with your business and circumstances,” said Robert Katz, managing director in EisnerAmper’s Financial Advisory Services Group, Philadelphia. “Be prepared and able to address every single line item on your response, regardless of the loan size, regardless of whether you or your team believe there’s a strong likelihood of an audit or not.

“If you aren’t prepared for discussions of all the information, reconsider submitting,” he said. “Be as complete as possible all at once. There’s a tendency to obtain the back up later. Have the support so there’s less scrambling later.” 

“Have the documentation and support for your loan forgiveness calculations and exemptions. Check with your lender on what they’re looking for when you submit for loan forgiveness and if they have a checklist they can provide,” McDonald said.

Government agencies, including the IRS, will need time to issue concrete guidance. Decisions and approval on loan forgiveness can also take months.

“This process will be keeping the tax professionals busy in 2021,” Pon said.