One of the key benefits of a Paycheck Protection Program (PPP) loan is the ability to have all or a portion of the loan forgiven. The amount of a PPP loan that will be forgiven is based initially on the qualifying costs an employer incurs during the 8 week period following loan funding (at least 75% of which must be used for payroll costs to qualify for 100% loan forgiveness). The initial forgiveness amount is then subject to reduction under a headcount test and a salary test. The headcount test and salary test reductions, however, do not apply in certain instances when headcount and salary are ...
A recent Tax Court decision suggests that employers may want to review their 401(k) plan loan programs and payroll practices. In Louelia Salomon Frias and Mervyngil Salomon v. Commissioner, TC Memo 2017-139 (July 11, 2017), the Tax Court held that an employee on maternity leave: (1) defaulted on her 401(k) plan loan; (2) failed to cure the default within the applicable cure period; and (3) as a result, there was a "deemed distribution" of the outstanding balance of the loan plus accrued interest which was taxable to the employee.
As described below, the loan default language in the ...