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Rules for Paycheck Protection Program (PPP Loan) Forgiveness

In order to get your Paycheck Protection Program Loan forgiven to the greatest extent possible, have to comply with a litany of specific rules, many of which fall under the categories of tracing, proof of forgiveness and certification by professional.

The Tracing Rules require that you show that you actually used the PPP loan proceeds for allowable expenditures. The only way to effectively do this, is to immediately transfer the loan proceeds to a new bank account. If you commingle the PPP loan proceeds with your general business account and deposit business income and pay other expenses from your general business account, you’ve failed to comply with the tracing rules. If you commingle the PPP loan proceeds with your payroll account and pay unauthorized payroll taxes with these funds, you also failed to comply with the tracing rules. Just because you eventually pay allowable expenses, does not mean that you have complied with the tracing rules.

Once the new bank account is open, transfer only the PPP loan proceeds into that new bank account, and then use those proceeds for only appropriate expenditures. Appropriate expenditures include Payroll Costs such as salary, wages, commissions and similar compensation, cash tips, vacation, parental, family, medical or sick leave, allowance for separation or dismissal, group health care coverage, including insurance premiums, retirement, and state and local taxes. Approved expenditures also include mortgage interest (not principal) on real property and business personal property, rent and utilities for contracts entered into before February 15, 2020. Failure to comply with these tracing rules will cause that portion of the loan, not to be forgiven. We’ll help you trace the funds directly from your PPP loan proceeds to authorized expenses. You will need to organize your bank statements, cancelled checks and direct transfers as well as your payroll records, and 941 & DE-9 payroll tax returns. We’ll help you with tracing, computation and the necessary proof to submit to your lender to request loan forgiveness. Banks are prohibited from granting forgiveness for applications that are not supported with proper documentation This tax law firm will guide you through the entire process.

The SBA has the right to audit these PPP loans, and we expect that the IRS will take over this function and audit numerous small businesses and virtually all medium and large size businesses in the near future. Expect it, as its bound to happen. A Certification by a Professional will be required certifying that: the uncertainty of current economic conditions makes the loan necessary to support ongoing operations; that the funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments; and that the eligible recipient does not have another application pending for a loan for the same purposes. This tax law firm will show you what needs to be done and counsel you through the forgiveness compliance procedures.

Please call me at (858) 481-4844 and I would be happy to help you with the process.

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The Tax Lawyer - William D. Hartsock, Esq. – San Diego Tax Attorney

Author: William D. Hartsock, Esq

A "Certified Tax Law Specialist" for over 37 years, Mr. Hartsock is one of the most trusted and respected tax attorneys in Southern California. Call today to discuss the facts of your case and learn about your options. Mr. Hartsock offers free consultations and all conversations are protected under attorney-client privilege; meaning that no information shared with a tax attorney will be shared with the IRS or California Franchise Tax Board.