SBA Issues Guidance on Forgiveness for PPP Loans
A key component of the Paycheck Protection Program has been the availability of loan forgiveness for certain covered expenses. However, guidelines clarifying the procedures for obtaining forgiveness had not yet been released, resulting in confusion about the process. Late last week, the SBA released the Loan Forgiveness Application for the PPP, providing some clarifying guidance to the implementation of the program but raising additional questions.
Here are some key details to keep in mind and some areas where we hope that more clarification will be issued soon:
- The application requires you to provide copies of Form 941(s) and state unemployment reports. For employers, this means that you shouldn’t plan on filing the application for forgiveness before the middle of June at the earliest.
- Earlier guidance established the presumption that loan amounts below $2 million were in good faith. The loan forgiveness application has a specific box that employers must check if they received a loan in excess of $2 million. Under current guidance, you can expect some sort of audit for those larger loans, but it is unknown whether that will be in the form of an on-site audit, a request for supporting paperwork, a remote proceeding, or some other manner. And, of course, even recipients of smaller loans should be scrupulous with their record-keeping.
- The time period for payroll costs is a strict 56 days (for now). For example, if you received your loan on Monday, April 20, the Covered Period ends 56 days later on Sunday, June 14. It does not carry over to Monday. Despite the strict 56-day time period, Employers who pay bi-weekly or even more frequently have some administrative flexibility in choosing when the clock begins running. They are allowed to use either the payroll that is accrued during the eight-week “Covered Period” beginning on the date of the PPP Loan Disbursement Date, or they can elect to calculate payroll costs using the eight-week period that begins the first pay period following the PPP disbursement—the “Alternative Payroll Covered Period.”
- Self-employed taxpayers must “pay” themselves during the eight-week period to get forgiveness. How this is accomplished is not explained in the application, so there are some open questions as to whether there are requirements about the manner and timing of payment by a self-employed person to herself.
- It appears that only cash (versus in-kind) compensation will qualify for forgiveness. This means that commodity wages do not qualify unless further guidance it given. If an employer applied for an original PPP loan using commodity wages, this may result in an adjustment to the allowed loan amount. This is an area where further guidance is needed.
- The costs appear to be based on “earned” amounts during the eight-week covered period. This allows the employer to pay certain items after the covered period ends, however, it does not allow the employer to prepay any costs including extra labor. It is silent as to whether raises or bonuses during the covered period are allowed. Further guidance on this is needed.
- It appears that fuel for vehicles is not an expenditure for a business utility. However, this is not specifically addressed in the application.
We will continue to update our blog as additional information becomes available, and, of course, the Business Services Group at DPBC is ready to assist you with your specific needs.
Post by Paul S. Parker.
Paul provides tax and trust expertise to individual and institutional clients, including corporations, business owners, charitable institutions, and private foundations.