Larry's Tax Law

As I previously reported, the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was jointly introduced in the U.S. House of Representatives (“House”) by Representative Chip Roy, a Republican from Texas and Representative Dean Phillips, a Democrat from Minnesota.  By a nearly unanimous vote, the PPPFA was passed in the House on May 28, 2020.  As anticipated, the legislation was promptly introduced in the U.S. Senate (“Senate”), where (without amendment) it was unanimously passed on June 3, 2020 by a voice vote.  President Trump signed the PPPFA into law today.

This is especially good news for businesses that have been shut down and/or otherwise severely financially impaired by the COVID-19 pandemic.  The PPPFA changes the landscape relative to loans received by businesses under the Paycheck Protection Program (“PPP”) that was enacted as part of the CARES Act.  The PPPFA, at least for some PPP loan borrowers, may not bring glee and joy!  The law contains some provisions that could be detrimental to some businesses.

As I previously reported, the Paycheck Protection Program (“PPP”) was touted as providing emergency assistance (i.e., a lifeline) to restaurants and other businesses ordered to shut their doors (e.g., dental offices, bars, hair salons, fitness clubs, yoga studios, shopping malls and movie theatres).  The owners of these businesses thought the availability of a forgivable loan equal to two-and-one-half times their monthly payroll costs could be exactly what the doctor ordered.  The loan, if forgiven, could keep these business afloat and allow them to retain their trained and skilled workforces once they were allowed to reopen.  Unfortunately, that hypothesis is severely flawed. 

Under the PPP, in order for a borrower to be eligible for forgiveness, the loan proceeds must be used for payroll costs (75 percent), and rent and utilities (25 percent) within eight weeks following the date of the loan.  If a borrower’s business is shut down due to an executive order of the governor for most, if not all, of the eight-week period, how can the borrower use the loan proceeds that indisputably are needed to reopen and maintain the workforce?  That circumstance was clearly not contemplated by Congress when it passed the CARES Act. 

On Friday, May 22, 2020, the Small Business Administration (“SBA”), in conjunction and consultation with the U.S. Department of the Treasury (“Treasury”), published an interim final rule (“IFR”) containing new guidance on the treatment of bonuses, prepayments, and the loan forgiveness application and process for Paycheck Protection Program (“PPP”) loans.

Loan Forgiveness Process 

Loan forgiveness under the PPP is not automatic.  Rather, borrowers must apply for forgiveness using the SBA’s Loan Forgiveness Application (SBA Form 3508) or their lender’s equivalent form, if any.  The process is somewhat streamlined:

• • The application is submitted to the lender for review and approval.
  • The lender will review the application and make a decision regarding loan forgiveness.
  • The lender has 60 days from receipt of a complete forgiveness application to issue a decision to the SBA.
  • The lender is responsible for notifying the borrower of the amount approved for forgiveness.
  • The lender will then request that the SBA repay the amount forgiven.
  • Within 90 days from the lender’s request for payment, the SBA will pay the lender the amount forgiven, plus any accrued interest. (If applicable, the SBA will deduct the amount of advances under the Economic Injury Disaster Loan program from its payment to the lender.)