Updates as of June 25, 2020

The Paycheck Protection Program (PPP) under the CARES Act continues to evolve, almost on a daily basis. While this program is not really a tax initiative, it does have an impact on tax filings. Moreover, the sheer volume and frequency of the administrative rule changes seem unmatched in recent legislative history.

The intent of this memo is not to restate an entire history of the PPP, but to summarize the administrative rule updates since the passage of the PPP Flexibility Act on June 5, 2020. See our discussion of those changes here.

Revised application. On June 16, 2020, the SBA released a new loan forgiveness application (Form 3508), because numerous computation changes were needed after the passage of the Flexibility Act, including;

  1. The option to use a 24-week covered period instead of an 8-week period.
  2. The payroll usage requirement reduced from 75% to 60%.
  3. The moving of one FTE test from June 30 to December 31.
  4. The creation of a new FTE test exception for restaurants, hotels, and entertainment venues.

Perhaps more importantly, the SBA heard Congressional criticism of the complexity of the Form 3508 application and they also released a Form 3508EZ simplified form. The conceptual math of the full form is retained, but the FTE testing and percentage wage reduction testing is removed. Accordingly, only those businesses who can attest that they meet the safe harbor exceptions to those tests can use the simplified form. In the end, the form really is not simpler – it just looks shorter by omitting the sections that do not apply for those to whom they do not apply.

Rules posted June 11, 2020.

  • Makes conforming changes to the rules to reflect the passage of the Flexibility Act.

Rules posted June 12, 2020.

  • Clarifies the prohibition on PPP participation by businesses that are (at least partially) owned by those with felony convictions.

Rules posted June 17, 2020.

  • Makes additional conforming changes to the rules to reflect the passage of the Flexibility Act.
  • Explains how loan forgiveness works for owner compensation replacement in light of the expansion of the covered period to 24 weeks under the Flexibility Act. It provides an insight into why the Agency is limiting those payments to $20,833 instead of $46,154 (which is $100,000 times 24 weeks divided by 52 weeks).

Rules posted June 22, 2020.

  • Makes some definitional and mechanical changes to prior guidance, consistent with changes in the Flexibility Act.
  • Clarifies the loan forgiveness application and approval process.
  • Clarifies that the deadline for the application is on or before the maturity date of the loan. In addition, the application can be filed before the end of the covered period. Since one of the FTE tests is at the end of the period, it is hard to see how a premature application can be complete. Perhaps this guidance is directed to those who plan to file the 3508EZ and assert that the test does not apply.
  • Reiterates a prior point that if the borrower does not apply for forgiveness within ten months of the last day of the covered period, then the loan is no longer deferred and the borrow must begin paying principal and interest.

Rules posted June 24, 2020.

  • It provides additional clarity on the prohibition on participation in the PPP program by businesses that are owned by those with felons.

Users should be advised to regularly go to treasury.gov and click on the red bar about COVID-19 relief, to see the full list of issued guidance. Updates are posted more than weekly. Please contact us if you would like to discuss further.

R. Milton Howell III, CPA, CSEP
R. Milton Howell III, CPA, CSEP

Milton is experienced in taxation issues including, tax research for both open and closed transactions, structuring complex tax transactions, estate and income tax planning, and representing clients before tax authorities. As DMJ’s Director of Tax Services, Milton regularly writes and reviews articles in local, regional, and national publications on tax matters and spends significant time monitoring current tax issues and legislation.

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