CARES Act Covid-19 EIDL

[mudtech61]

All,

The LLC I founded received an EIDL due to the Covid-19 disaster in July of 2020 under the provisions of the CARES Act. Now, 4.5 years later and while this loan which was to provide 6 months of operating capital, looks like it will get defaulted as the LLC has received no revenue since Sept. 2023 and the loan payments have been kept current with the members personal funds. 

The Question: Are these loan proceeds considered to be income/unearned income/unrealized capital gains and will be taxable as income, even though the loan proceeds were used for expense purposes? There was some revenue between 2021 and 2023 but the expenses ate up the funds and the revenue was used for member/employee compensation.

Thanks

[JotikaT2 · Accepted solution]

The original terms of the EIDL states that loan proceeds are not considered taxable income.  Any loan proceeds used to pay off expenses can still be deducted on your tax return. Please see this link for more details on this loan and the terms as well as this link which breaks down how the loans work as far as taxes.

You have some options available if you are having issues making payments on your loan.  Please see manage your EIDL for more details.

[mudtech61]

JotikaT2,

Thanks for responding.  OK, if I am understanding you, if the LLC received a EIDL understanding the CARES Act provisions during the Covid-19 emergency and these funds were used to pay allowed expenses (as determined by a CPA firm specializing in EIDL issues) there are NO tax issues? No tax on this money if there is a default as unearned income as the loan was defaulted and the loan proceeds were not repaid to the SBA? Thanks.

Mudtech61 

[mudtech61]

Follow up:

JotikaT2,

Tax issue if loan is "charged off" by SBA that was funded during Covid-19 under provisions of the CARES Act? Not forgiven but also not repaid. What are these tax concerns and IRS issues?

Mudtech61 

[JotikaT2]

The terms of these loans do not have provisions for not paying them back or defaulting.  These loans were issued with terms specifically saying you cannot default on the loans.  You will need to use the last link provided above to reach out to them directly to see what your options are with the agency.

If they indicate your loan can be forgiven, you may face tax implications on the amount of the debt forgiven.  Please see this link for more details.

[mudtech61]

JotikaT2,

OK, for us totally tax challenged, old, fat, one eyed and retired Senior Citizens, what are you telling me in plain English? Is it that, since there is no recourse and under the terms of the Covid-19 EIDL since default is not allowed, it cannot be forgiven or "charged off debt" and therefore is not taxable as income, gift or other taxable money coming into the LLC? Or, since this money is loaned to the LLC and then goes to the employees (even if as dividends it is still given for performance of services if the person is an employee of the LLC engaged in efforts to generate (or involved in) revenue generating efforts, directly benefiting the LLC) it is not taxable as it stands as a debt until discharged in bankruptcy, insolvency or other?

Just trying to get this straight in my head it will stand as a debt until resolved or the statute of limitations is satisfied? Thanks.

Mudtech61