Another COVID Loan question

Participant takes a COVID loan on 9/1/20, and defers payments. Question is, when this is re-amortized for payments to begin after 1/1/21, does the loan ending date become 12/31/2025? The participant seems to think that he can go to 12/31/2026, but, truthfully, after reading the literature on COVID loans, I can safely say I have no idea. 

Thanks for any replies.

12/31/2025 would be my vote.

This was cleared up in Notice 2020-50.  You get to extend the amortization period by a maximum of one year, regardless of how long payments are suspended.  For OPs example, the latest extended due date is 8/30/2026 8/31/2026.

7 hours ago, RatherBeGolfing said:

This was cleared up in Notice 2020-50.  You get to extend the amortization period by a maximum of one year, regardless of how long payments are suspended.  For OPs example, the latest extended due date is 8/30/2026.

This is correct.  You set up the loan payment dates as normal.  In this example, if the loan is taken on 9/1/2020, the original 5 year payoff date would be 8/31/2025.  The first loan payment can be delayed until 1/1/2021.  The loan interest from 9/1/2020 to 12/31/2020 is calculated and added to the loan balance.  The total loan balance (including interest) is then re-amortized to a payoff date that is one year past the original payoff date (8/31/2025 plus one year is 8/31/2026).

10 hours ago, RatherBeGolfing said:

This was cleared up in Notice 2020-50.  You get to extend the amortization period by a maximum of one year, regardless of how long payments are suspended.  For OPs example, the latest extended due date is 8/30/2026.

8/30/2026, not 8/31/26?

1 hour ago, Pam Shoup said:

This is correct.  You set up the loan payment dates as normal.  In this example, if the loan is taken on 9/1/2020, the original 5 year payoff date would be 8/31/2025.  The first loan payment can be delayed until 1/1/2021.  The loan interest from 9/1/2020 to 12/31/2020 is calculated and added to the loan balance.  The total loan balance (including interest) is then re-amortized to a payoff date that is one year past the original payoff date (8/31/2025 plus one year is 8/31/2026).

8/31/26, not 8/30/26?

20 hours ago, Mike Preston said:

12/31/2025 would be my vote.

I think the argument for 12/31/2025 as opposed to 8/30 or 8/31/2026 is perhaps that because this is a loan taken out during the CARES Act suspension period,  no payment was actually due until 2021, and thus there was never a payment due during the March 27, 2020 - December 31, 2020 to get the add-on 1 year suspension. Is that what Congress intended in the legislation or IRS in 2020-50? Probably not.

3 hours ago, Luke Bailey said:

8/30/2026, not 8/31/26?

8/31/2026.  Good catch.

3 hours ago, Luke Bailey said:

because this is a loan taken out during the CARES Act suspension period,  no payment was actually due until 2021, and thus there was never a payment due during the March 27, 2020 - December 31, 2020 to get the add-on 1 year suspension.

There is chronological issue with this argument.  Per the CARES Act, in order for a payment to be delayed/suspended, it has to be due during the March 27, 2020 - December 31, 2020 period.  Therefore, the argument that the loan is not entitled to add 1 year to the maximum loan term because payments were never due fails.

The only way I see a loan miss out on the extra year is if the loan, by its original terms, does not have a loan payment due on or before December 31, 2020.  

13 hours ago, RatherBeGolfing said:

8/31/2026.  Good catch.

There is chronological issue with this argument.  Per the CARES Act, in order for a payment to be delayed/suspended, it has to be due during the March 27, 2020 - December 31, 2020 period.  Therefore, the argument that the loan is not entitled to add 1 year to the maximum loan term because payments were never due fails.

The only way I see a loan miss out on the extra year is if the loan, by its original terms, does not have a loan payment due on or before December 31, 2020.  

RBG, I think you can get it out of the statute. A loan taken out, say, on 4/1/2020 would be a loan outstanding on or after the date of enactment under 2202(b)(2)(C), and therefore the period described in 2202(b)(2)(A) (date of enactment through 12/31/2020) would be ignored for purposes of the 5-year level amortization requirement of 72(p).  But there might not be a "due date" for such loan before 1/1/2021, and thus 2202(b)(2)(A) would not apply. It arguably could depend on the loan paperwork/electrons. If you just used your regular paperwork/electrons and they said you had a payment due in 2020, but then you had overrides to that, that loan would seem at least superficially not to have the problem. But if the loan literally provided for the first payment to be made 1/31/2021, then there arguably would be no 2020 payment to extend by one year. All you would have is the delay in the first payment until 2021 under 2202(b)(2)(C). Note that in the example in Notice 2020-50 they assume a 4/1/2020 loan that has payments due in 2020 that are not suspended until 7/1/2020.

I think the above falls into the category of "additional...more complex...ways to administer section 2202(b)" as referenced in Notice 2020-50. Unclear whether it would also fall into the category of "additional reasonable...more complex" (emphasis supplied) ways.