Paycheck Protection Program Update

New Deadline for PPP Forgiveness

Additional timeline options for incurring forgivable expenses are available under the Paycheck Protection Program Flexibility Act passed on June 5, 2020. The covered period for loan forgiveness has been moved from 8 weeks after loan disbursement to 24 weeks. Borrowers who had already received PPP loans prior to June 5 have the option to use the 8-week covered period, however.

Another key change in the Act was to lower the required use of payroll costs from 75% to 60%.This change, in addition to a longer covered period, and new safe harbors related to full-time equivalency should help most borrowers meet forgiveness requirements. Note that if a borrower uses less than 60% of the loan on payroll costs during the covered forgiveness period, partial loan forgiveness will be available.

SBA guidance has also recently clarified that borrowers do not have to wait until the end of their covered period to apply for forgiveness. Loan forgiveness can be applied for any time after PPP funds have been used and before the maturity date of the loan. If forgiveness is not applied for within 10 months after the last day of the covered period, borrowers must begin paying principal and interest on the loan.

PPP Forgiveness Made EZ for Some

In response to the Flexibility Act, the SBA has revised the original PPP loan forgiveness application and also created a short form for qualified borrowers. The new E-Zier form to complete is Form 3508EZ and is available for borrowers who meet at least one of the following requirements:

• Self-employed with no employees
• No employee salary reduction by more than 25% and no employee hour reduction
• No employee salary reduction by more than 25% and experienced a reduction in business activity due to compliance with health guidelines related to COVID-19

The EZ forgiveness application has fewer calculations and less documentation. Schedule C filers with no employees may have the most straightforward forgiveness calculation. Recall that those borrowers were granted loans calculated as 2.5 months of their 2019 Schedule C net profit. With the new 24-week forgiveness cap for those businesses being the same number, Schedule C businesses with no employees should see full forgiveness.

Deductibility of PPP Expenses of Forgiven Loans

The attractiveness of the Paycheck Protection Program lies in its forgivable loan potential with no inclusion into taxable income. And it was initially assumed by many there would be no income tax consequences at all, but that has turned out to be untrue. Uncertainty looms over the outcome of tax deductions for expenses used to qualify for PPP loan forgiveness. Will the rent, utilities, interest, and payroll related expenses paid for with PPP loan proceeds be deductible for tax purposes?

The CARES Act seemed unclear to many on this topic and in May, the IRS issued guidance disallowing such expenses for tax purposes to prevent a benefit double dip. However, several congressional members were unhappy with this outcome, claiming the intent of the PPP was to be truly tax-free. A bill in the Senate, the Small Business Expense Protection Act of 2020, if passed would reverse the IRS’s position therefore making PPP-related expenses tax deductible. The bill continues to gain bipartisan support but also has opposition, so the outcome remains cloudy.

PPP Public Disclosure 

After considering input from a congressional oversight committee and taxpayers, the SBA and Treasury agreed to make certain data from the Paycheck Protection Program (PPP) public. Initially, loan recipient data was claimed by the two organizations to be private information, but requests for greater public transparency will soon be met.

The SBA has agreed to publicly disclose business names for recipients of PPP loans greater than $150,000. Additional information to be disclosed for this group includes: business addresses, NAICS codes, zip codes, business type, demographic data, non-profit information, jobs supported, and loan amount ranges as follows:

• $150,000-350,000
• $350,000-1 million
• $1-2 million
• $2-5 million
• $5-10 million

According to the SBA, these loan amount categories account for nearly 75 percent of approved loan dollars but a majority of borrowers received loans less than $150,000. As such, many borrowers’ names will not be publicly released.

Limited data in the form of totals will be publicly released for loans under $150,000, aggregated by zip code, industry, business type, and various demographic categories. Names for loans of this size will not be publicly disclosed.

The SBA will be releasing even more data, including sensitive personally identifiable information, to a congressional committee overseeing the program.

PPP 2.0?

The Paycheck Protection Program June 30th application deadline was extended to August 8th. Will new applicants claim the remaining roughly $100 billion in funds? Or will there be another round of PPP funding allowed in a “PPP 2.0” type add-on? It’s possible but still uncertain. 

PPP 2.0 is likely to be more targeted than its predecessor, but will allow qualifying small businesses to receive a second PPP loan to stay afloat during the sharp economic downturn. Bills recently introduced in the Senate and House include the following criteria for supplemental PPP loans:

• Borrowers must be self-employed or have 100 or fewer employees;
• Have suffered more than a 50% loss in revenues compared to a previous quarter; and
• Exhausted first PPP loan funds

Underserved and rural borrowers are meant to have priority in this round of supplemental PPP, as they were supposed to have had in round one. I will keep you posted as details progress.