SEC Says PPP Loans MAY Require Disclosure to Clients

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May 01, 2020


SEC Says PPP Loans MAY Require Disclosure to Clients

Yesterday the SEC announced  staff guidance relating to reporting obligations for investment advisory firms that receive a Paycheck Protection Program (PPP) loan.

The directive from SEC staff explains that “If the circumstances leading [an advisory firm] to seek a PPP loan…constitute material facts relating to your advisory relationship with clients,” then they should be disclosed. The SEC provided two examples of such material facts:

  • If a PPP or other loan is being taken to pay the salaries of employees who are primarily responsible for performing advisory functions for clients, and
  • If a firm is experiencing conditions that are reasonably likely to impair its ability to meet contractual commitments to clients, it may need to be disclosed in response to Item 18 (Financial Information) of Part 2A of Form ADV (brochure), or as part of Part 2A, Appendix 1 of Form ADV (wrap fee program brochure).

This guidance from the SEC appears inconsistent with guidance issued by FINRA several weeks ago, when it announced that PPP loans did not need to be reported as a ‘compromise with a creditor’ in response to Question 14K on Form U4.

AALU/GAMA continues analyze this guidance and will keep members updated. Stay tuned to the COVID-19 action center and our emails for future updates.


Updated PPP Guidance – Expense Deductibility After PPP Loan Forgiveness

On Thursday night, the IRS issued clarifying guidance around the ability for small businesses to claim deductions for the wages and expenses paid using a PPP loan if that loan subsequently was forgiven.

Citing section 265 of the tax code, the IRS contends that businesses who met the qualifications and whose loans were forgiven and therefore not included in their gross income for tax purposes (a key feature of the loan program) could not also deduct those same expenses from their taxes, as is customary. As the statue is written, the IRS believes that would lead to a double tax benefit and therefore is impermissible.

Both Chairman of the Senate Finance and House Ways and Means Committees have indicated they may possible seek a legislative adjustment to make the expenses deductible, leaving open the possibility of future legislation.

To Read More – WSJ Report 


New Resources

  • Qualified Plan Provisions in the CARES Act: Addressing Employee Challenges | Read hereTo address the economic challenges created by the COVID-19 pandemic, many employers must balance the desire to aid their employees with the need to conserve cash and ensure the continuity of the business. This WR Marketplace walks through the actions that can be taken under the new law and costs and benefits of various options to assist employees.
  • Have you applied for a PPP loan? | Read hereThis FAQ dives into detail on the Paycheck Protection Program and how to calculate your loan amount.
  • COVID-19 and Presidential Polling | Read hereAALU/GAMA’s Emily Tavino provides an update on the latest polling, looking at the effects of COVID-19 on the presidential race.
  • Advocating During COVID-19 | Read hereAALU/GAMA’s James Bailey discusses how advocacy has changed with social distancing, what organizations are doing to say connected, and how you can reach your lawmakers.

ICYMI: Recent Webinars

  • Fast-Tracking the Transformation in Underwriting | Watch HereHear Agency One’s Gonzalo Garcia, Clareto’s Dave Dorans, Principal Financial Group’s Neal Halder, and Swiss Re’s Nichole Myers discuss the changes in underwriting.
  • Helping Your Clients Monetize the Perfect Storm (Members Only) | Watch HereCapital Strategies Group, Inc.’s David Byers and BakerHostetler’s Jonathan Forster share transferable business ideas on how they are helping their clients navigate planning and market volatility.
  • Navigating the Now: Insights with Congress (Members Only) | Watch HereCongressman Ron Estes (R-KS) joins AALU/GAMA’s Marc Cadin for a behind-the-scenes look at the CARES Act, what comes next, and the importance of advocacy.