CARES act - existing loans

[Scuba 401]

is there anything in the guidance about outstanding loans that are not current. i know loans that are current can be suspended under CARES. can loans that were not current benefit from suspension?

[Luke Bailey]

Scuba 401, I'll be interested in what others have to say on the topic, but it seems to me that the IRS studiously avoided tackling this issue in Notice 2020-50. I think there is a position under the statute that if the cure period  had not ended for the loan by March 27, then you could suspend the payments due after March 27, 2020, until first quarter 2021. But the payments due before March 27, 2020 would not be suspended, so the window has now closed. In other words, if someone missed, say, their March 31, 2020 payment, obviously they are squarely within the relief if the employer chooses to apply it, because the first missed payment is after March 27. If someone had missed the February 29 payment, and then later, by June 30, 2020, caught up the February 29 payment, they should also be covered and not have a default if the employer applies the CARES Act suspension. But if they did not catch up the February 29 payment by June 30, they would have a default in the second quarter, because the due date for the February 29 repayment was not suspended, and so their loan would be deemed in the second quarter of 2020, even though the March 31 and later 2020 payments would have been suspended. If the individual terminated before July 1, 2020, so that they would have a loan offset distribution rather than a deemed distribution, then they could claim CRD treatment for the loan offset, assuming they qualified as COVID-affected, or of course roll it over under the regular loan offset rollover rules.