By Alan R. Sasserath, CPA, MS
Over the last week, we have received further guidance on the Paycheck Protection Program (“PPP”) regarding:
1. Certification including clarity on safe harbor provisions,
2. An extension of time to May 18, 2020 to return PPP loan proceeds under the certification safe harbor provisions,
3. Clarification of partnership loan calculation rules including the ability to increase PPP loan proceeds to partnership borrowers under such rules, and
4. PPP Loan forgiveness guidance.
Our original intention was to send an update today discussing the first three issues mentioned above; however, those issues seem to be old news considering the information regarding loan forgiveness that was released yesterday. While we are available to discuss the issues mentioned above on an individual basis, we will use this opportunity to discuss the information released yesterday regarding PPP loan forgiveness below.
Yesterday, the SBA in conjunction with the Treasury released the PPP Loan Forgiveness Application (the “Application”). While there is a lot to digest in the Application itself, some of the more critical items are the following:
1. The CARES Act defined forgivable costs as those “incurred AND paid.” The Application defines forgivable costs as those “incurred OR paid” and gives further guidance on when an expense is forgivable.
2. Full Time Equivalent (“FTE”) definition. While previously thought to use the SBA definition of FTE which is 30 hours per week, the Application clarifies the definition to be 40 hours per week.
3. With regard to loan forgiveness reductions related to either reductions in FTE’s or wages, the Application gives guidance as to how to calculate such eliminations.
We are planning to have a webinar later this week to discuss these and other items in the Application. We will also update our excel workbook to be released in conjunction with the webinar. Be on the lookout for the webinar announcement.
Additionally, as per the SBA website, the Application form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:
• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
• Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan
• Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
• Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30
• Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined
The Application is accessible here: 3245-0407 SBA Form 3508 PPP Forgiveness Application (1).
In addition to the release of the Application as discussed above, the House of Representatives passed the HEROES Act yesterday as well. While several Republican Senators have made statements that this bill is dead on arrival to the Senate, the HEROES Act has several interesting provisions related to the PPP that may not be DOA. Here are some of the key PPP provisions:
• Extension of the covered period from June 30 to December 31 allowing the current 8-week period from the date of PPP loan funding to be permitted to extend past June 30.
• Repeal of the requirement that 75% of the loans be spent on payroll.
• Clarification that expenses paid or incurred with proceeds from PPP loans that are forgiven are also deductible for federal income tax purposes.
• Extends the 8-week period to pay forgivable expenses to 24 weeks.
• Establishes a minimum maturity on PPP loans of 5 years to enable borrowers to amortize loans over a longer timeframe.
• Extension of the eligibility to all nonprofits.
• Allows payroll tax deferrals for recipients of forgiven PPP loans.
As with the CARES Act, there are many provisions in the HEROES Act other than those related to the PPP; however, these are some that are pertinent to the PPP. Please note that if some of the provisions in the HEROES Act discussed above pass, there will be revisions to the Application.
As seems to be the case all too frequently, this was another big week of news regarding the PPP. We will continue to keep you informed so please stay close.
As always, please feel free to reach out if we can be of assistance.