The U.S. Small Business Administration (SBA), in consultation with Treasury, released guidance Tuesday August 4, 2020 on a new Forgiveness focused FAQ document. Over four sections, 23 frequently asked questions are addressed.
The four sections are outlined below with key highlights. You can review the document in full HERE.
General Loan Forgiveness
There are 3 questions in this section. The SBA clarifies that the 3508EZ or lender equivalent form should be used for sole proprietors, independent contractors, or self-employed individuals with no employees. It also confirms that no payments are required from borrowers if their loans are fully forgiven and an application is filed timely.
For lenders, this section confirms that scanned copies of signed applications and documents may be accepted.
Loan Forgiveness Payroll Costs FAQs
There are 8 questions answered in this section. The eligible forgivable amount related to owner’s compensation by entity is addressed based on a recently released Interim Final Rule. We prepared a chart detailing these amounts in an earlier post. This section defines owner-employee as someone who is both an owner and an employee of a C Corporation. This section addresses the eligibility of payroll costs, health insurance and retirement benefits based on the timing of the payments, requirement to calculate a partial pay period, and eligible types of compensation.
This section indicates that forgiveness will not be provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period. A common question we receive is if the 2019 employer contribution that is paid during the Covered Period (the annual safe harbor that is normally paid during this time) would be eligible. The use of the word “accelerated” indicates that may still be available for forgiveness, but the reference to periods outside the Covered Period may indicate that the intent is to limit eligibility to a prorated 8 – 24 week amount.
Loan Forgiveness Nonpayroll Costs
This section answers 7 questions. It confirms that payments made during for services before and payments made directly after the covered period for services during are both eligible for forgiveness.
This section answers what is perhaps the longest running FAQ we have seen since the PPP was established and it is not at all what most people assumed. Transportation was listed in the CARES Act as an eligible nonpayroll expense. No further information has been provided to clarify what types of expenses would be eligible for forgiveness as “transportation.” FAQ#6 in this section explains that payments of transportation utility fees assessed by state and local governments are eligible for forgiveness.
This section also confirms that payments of interest on business mortgages secured by real or personal property are eligible for forgiveness. They specifically list an auto loan as eligible.
Loan Forgiveness Reductions
This section answers 5 questions related to reductions in forgiveness based on a reduction of headcount and / or compensation levels. They provide various examples and review the various safe harbors available for that may eliminate reductions for reducing headcount.
We have consulted with many PPP borrowers and most will find no reductions for a reduced headcount due to the robust safe harbors and exemptions offered in various legislative action since the passing of the CARES Act. Restoring salary is the criteria that will likely result in reductions in forgiveness for some borrowers where an employee was let go, fired, or resigned when their covered period compensation is measured against the first quarter of 2020. There are no safe harbors available to remedy a reduction in compensation in those situations like those that exist for the FTE test.
As noted above and in several other areas, there still are some areas of uncertainty. These issues will need to be addressed in further guidance from the SBA and Treasury.
Additionally, there are multiple bills in Congress that seek to offer automatic forgiveness to loans under a certain amount ranging from $150,000 to $2 million.
The deadline to apply for a PPP loan is August 8.
We are in this together,
Brinker Simpson & Company, LLC
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice & cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).