The Small Business Administration (“SBA”) continues its quest to provide guidance relative to the Paycheck Protection Program (“PPP”) enacted as part of the CARES Act and the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) enacted by Congress to provide clarification and remove some of the rigidity surrounding the PPP.
The PPP legislation and much of the guidance PPP borrowers have received to date is fraught with complexity and inconsistency. The SBA is doing its best, as Paul McCartney and John Lennon expressed in their hit song We Can Work It Out, to help PPP borrowers get through these trying times:
Try to see it my way
Only time will tell if I am right or I am wrong
While you see it your way
There’s a chance that we might fall apart before too long
We can work it out
We can work it out
In that vein, the SBA recently issued interim final rules (“IFRs”) focused on PPP loan forgiveness. Additionally, last week the SBA published a revised PPP loan forgiveness application (“Form 3508”), and a new short-form forgiveness application (“Form 3508EZ”).
Up until this past Wednesday, the Paycheck Protection Program (“PPP”) loan forgiveness application issued by the Small Business Administration (“SBA”) had not been updated since May. New guidance was issued in the interim (and anyone who has been following this area knows that guidance is constantly evolving). Most taxpayers have some breathing room before they must file their forgiveness applications; so, it may behoove them to wait to file their applications until they digest the most recent guidance.
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.)
In addition to worrying about keeping their business afloat these days, businesses are focusing on whether their Paycheck Protection Program (“PPP”) loan will be forgiven. Without loan forgiveness, many of these businesses will not survive. Consequently, the stakes are high!
The eligibility requirements for PPP loan forgiveness are complex. As we discussed previously, in large part, loan forgiveness is based on the borrower using the loan proceeds within the eight-week period immediately following receipt of the loan on specified expenses, including payroll and rent.
Some landlords have been generous enough to reduce or even abate rent for a period (e.g., three months) to assist the tenant in salvaging its business. Consequently, these businesses may have little or no rent to pay during the eight-week period. If a business owner asks the landlord for advice on what to do in this situation, the landlord will likely say:
Love thy landlord – pay me anyway!
Whether the prepayment of rent (or the payment of rent for a period preceding the eight-week period) applies for purposes of the loan forgiveness computation under the PPP is likely a question being pondered by many businesses and their advisors.
Larry J. Brant
Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.