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SBA Publishes Loan Forgiveness Form and Instructions for PPP Loans

Most, if not all, Payroll Protection Program (PPP) borrowers are focused on the question of whether they will be able to have their PPP loan forgiven.  Many questions have arisen, and some but not all, have been answered by the Loan Forgiveness Application and instructions   released by the SBA on Friday, May 15, 2020.  Here are some of the highlights.

  • Annual “cash” payroll costs are capped at $100,000 per employee. While this is not news, the SBA calculates that this amount on a pro-rata basis for the 8 week “Covered Period” is $15,385. If you do the math, that is equal to 8 weeks per year divided by 52 weeks multiplied by $100,000. Some were hoping that those on a semi-monthly pay schedule could use a larger amount based upon 24 pay periods per year. Apparently not.
  • Alternative Payroll Covered Period. The Covered Period is generally eight weeks (actually 56 days) beginning on the date the loan is first funded. The Alternative Payroll Covered Period is only for employers with bi-weekly or more frequent payroll schedules. Therefore, it doesn’t appear to apply to employers who pay semi-monthly. It begins on the on the first day of the first payroll period following the PPP Loan Disbursement Date and ends 56 days later.  The following example is provided:  Alternative Payroll Covered Period: “… if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the  Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”  This suggests that one cannot include payments for a payroll period that begins before the PPP Loan Disbursement Date but is paid after that date. However, that is inconsistent with the Press Release issued concurrently by the SBA which states that the form and instructions provide “Flexibility to include eligible payroll and non-payroll expenses paid OR incurred during the eight-week period after receiving their PPP loan.” (emphasis supplied).  See more below.
  • Paid AND Accrued vs. Paid OR Accrued. The statute provides for forgiveness of amounts “paid and” Some borrowers had concerns about whether costs needed to be both paid AND accrued during the Covered Period. The instructions seem to go with “or.” The instructions state: “Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.” Not surprisingly the instructions caution that costs can be taken into account only once; either when paid or accrued.
  • Paid OR Accrued non-payroll costs. The instructions adopt a similar rule for non-payroll costs. “An eligible non-payroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
  • Counting days in the Covered Period. As noted above, the eight-week period is calculated as 56 days. Also, based upon the example in the instructions, the day the loan is disbursed counts as the first day of the Covered Period. This is different than what we expect as tax controversy lawyers where the first day counted is generally the day AFTER the event in question. Also, even if the last day of the covered period ends on a weekend, there is no roll-over to the next business day. Another departure from what we tax litigation attorneys would expect.
  • Full-Time Equivalency. Under the law there are reductions in the amount of loan forgiveness if the number of workers is reduced. Under the instructions this is calculated on the basis of 40 hours per week. Thus “for each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.
  • The instructions list specific documentation which doesn’t need to be submitted to the SBA, or the lender, but is required to kept for six years.

If it seems we are hedging by using the phrase “it appears” in our analysis– we are. The rules are changing literally daily, and we don’t have much in the way of extrinsic sources to help with interpretation when the rules are ambiguous. Further analysis of the mechanics of the loan forgiveness form may yield additional (or perhaps different insights). Due to the confusion, we expect to be representing many clients who are audited by the SBA or Treasury regarding their compliance with the PPP loan forgiveness rules.

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