Tag Archives: PPP

With $130 Billion Left, PPP Application Deadline Extended

On July 1, 2020, the House waived through Senate-passed legislation (S. 4116) that extends the deadline to apply for a loan under the Paycheck Protection Program (PPP), the centerpiece of relief under the CARES Act. The PPP provides forgivable loans to certain small businesses to cover payroll and other permissible expenses.

The original deadline to apply for PPP loans was last Tuesday, June 30, 2020. With the President’s signature over the weekend on July 4, 2020, the deadline for businesses to take advantage of the nearly $130 billion in remaining PPP funds is now August 8, 2020. Business owners interested in applying for a PPP loan should contact their local lender about the program. We are happy to discuss the PPP and other available economic relief for your business.

PPP Flexibility Act Expected to Be Signed into Law

On Wednesday, June 3, 2020, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was approved by the House late last week. President Trump is expected to sign the Act into law. As a part of the larger Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program (“PPP”) provides loans to small-to-mid-sized businesses suffering from the COVID-19 pandemic. As enacted, the PPP loans are to be forgivable when used for specific business and payroll expenses during a specified timeframe. Any forgiven loan amounts are excluded from businesses’ taxable income. However, due to insufficient funding and lengthier pandemic-related shutdowns, the PPP relief became inaccessible for many businesses.

The changes made to the PPP by the new legislation include:

  • Allowing businesses 24 weeks (or until December 31, 2020, if it comes first) post-loan origination to use loan money that will qualify for forgiveness. This applies to both new and existing loans.
  • Reducing the amount of loan money required to be spent on payroll expenses from 75 percent to 60 percent, allowing more funds to be spent on rent, utility payments, and mortgage interest.
  • Extending the time period for the rehiring exception to forgiveness reduction from June 30, 2020 to December 31, 2020 and adding new exceptions for employers who could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19-related operating restrictions.
  • Extending the loan terms from two to five years, unless otherwise modified by lenders and borrowers.
  • Permitting payroll tax deferment for businesses that receive PPP loans regardless of loan forgiveness. Under the CARES Act and subsequent interpretive guidance, payroll tax deferral could only be utilized up until a business received notification of loan forgiveness.
  • Replacing the six-month deferral of PPP payments due with deferral until the date on which the amount of loan forgiveness is provided to the lender.

The legislation does not clarify the parameters of the required PPP certification that “[c]urrent economic uncertainty makes [a] loan request necessary to support the ongoing operations of the Applicant.” It also does not address the deductibility of expenses paid for by PPP loan funds, as previously discussed in a prior post. Further PPP corrections and guidance are expected.

PPP Bonuses, Hazard Pay Count Towards Forgivable Payroll Costs, and Other New Guidance

On May 22, 2020, a week after issuing the application form for the CARES Act’s Paycheck Protection Program (“PPP”) loan forgiveness, the Small Business Administration (“SBA”) released the twenty-six-page interim final rules that provide formal guidance to accompany the application package.

Most of the interim final rules reiterate the substance of the PPP loan forgiveness application, but they also include new pieces of significant guidance such as the inclusion of employee bonuses and hazard pay as forgivable payroll costs when paid to employees earning less than $100,000 a year. Such payments are eligible for forgiveness because, as a supplement to salary or wages, they are considered compensation.

Some of the other significant new guidance includes:

  • a further cap on the forgivable payroll expenses of owner-employees, as not to be confused with self-employed individuals, in an amount that is the lesser of 8/52 of 2019 compensation or $15,385 per employee;
  • application of the above cap across all business, suggesting that someone with an ownership interest in multiple business will be subject to the overall limitation; and
  • safe harbors to protect borrowers from a reduction in full-time employees due to the employees’ actions.

Unsurprisingly, questions remain following the release of the rules, such as the definition of an “owner-employee.” No additional IRS frequently asked questions  have been released to supplement the interim final rules.

IRS Issues Expanded FAQ Guidance on Employee Retention Credit

The Internal Revenue Service (“IRS”) has expanded its FAQ guidance on the Employee Retention Credit (“ERC”), which has been discussed in greater detail in a prior post. Enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the ERC provides a refundable tax credit to eligible employers for certain employment taxes equal to 50 percent of up to $10,000 in qualified wages paid per employee, effective March 12, 2020 through December 31, 2020. However, employers that received loans under the Paycheck Protection Program (“PPP”) are not eligible for the ERC.

The ERC FAQ was originally posted in late March, and the IRS has since continued to update it. The FAQ now has nearly 100 questions posed and answered on major-issue areas such as:

A more recent update relates to the eligibility of an employer who repays its PPP loan in accordance with the Small Business Administration (“SBA”) requirement that a business recertify in good-faith that the PPP loan was “necessary to support ongoing business operations” (previously discussed here, here, and here). Released May 8, 2020, the IRS FAQ 79 states that an employer that applied for the PPP loan, received payment, and “repays the loan by May 14, 2020 . . . will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit.” Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer.

The original deadline for PPP loan repayment was May 7, 2020, but was extended to May 14, 2020 with FAQ 43 of the SBA’s PPP FAQs. The SBA then further extended the repayment deadline to Monday, May 18, 2020 in SBA FAQ 47, following its release of guidance which relieved borrowers with loans of less than $2 million from the “necessity” recertification. While the IRS ERC FAQ has not been updated to reflect the new May 18 deadline, we can only assume that those employers who do make repayment by this time would qualify for the ERC all the same. We note, however, that implicit in IRS FAQ 79 is that employers who do not voluntarily make timely repayment may not claim the ERC. In other words, any employer who is ultimately forced by the SBA to repay the loan would not be allowed to take the ERC.

While the PPP loan was at the top of most employers’ COVID-relief wish lists, and for obvious reasons, the ERC may be the next best option for those who erred on the side of repayment. We are happy to answer any questions employers that opted for repayment may have.

PPP Loans Less Than $2 Million Deemed Certified in Good Faith; Larger Loans Get Penalty Relief But Remain In Cloud of Repayment Uncertainty

On Wednesday, May 13, 2020, just a day before the deadline to recertify or repay Paycheck Protection Program (“PPP”) loans (previously discussed here), the Small Business Association (“SBA”) made good on its promise to provide further guidance as to what circumstances necessitate repayment with its release of FAQ 46. The new FAQ asks the following question:

“How will SBA review borrowers’ required good-faith certification concerning the necessity of their loan request?”

The first part of the SBA’s answer reveals a safe harbor for borrowers of PPP loans with an original principal amount of less than $2 million. Borrowers who received loans below this threshold will be deemed to have certified in good faith that the loan was necessary, because they “are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.” The SBA also admitted that it has bigger fish to fry, as removing these borrowers from the PPP loan pool will allow it to “conserve its finite audit resources and focus its reviews on larger loans.”

As for the $2 million-and-above borrowers, the FAQ goes on to say that they may still have an adequate basis for making the required good-faith certification depending on their circumstances. If, however, the SBA determines by its review that a borrower lacked an adequate basis for its PPP loan, the SBA will seek repayment of such loan and notify the lender that the borrower is ineligible for loan forgiveness. Further, the SBA will not take administrative enforcement action to collect repayment or make referrals to other agencies if the borrower voluntarily repays the loan after receiving notification from the SBA. The SBA did not offer a specific timeframe within which repayment would prevent administrative enforcement.

Borrowers who did receive loans of $2 million or more should consider setting aside enough funds to make a repayment should the SBA require it, though one wonders whether the SBA could use retention of such reserves as a basis to question the necessity—and hence the qualification—of the loan. That seems like an unfair catch-22, motivating “larger” small businesses to stop paying employees after the PPP measuring period ends. We hope the SBA will provide more clarification to help these businesses avoid that dilemma and to encourage businesses to continue deploying funds to keep their workforces in place after the PPP measurement period ends.

The SBA also released FAQ 47 later in the day on May 13, which automatically extends the repayment date to Monday, May 18, 2020. The stated reason for this extension is “to give borrowers an opportunity to review and consider FAQ 46.” The practical significance of FAQ 47 as it relates to the necessary-ness certification is unclear, given the penalty relief provided by FAQ 46.

PPP Repayment Deadline Extended But Confusion Remains

On May 5, 2020, the Small Business Administration (“SBA”) in consultation with the Department of Treasury (“Treasury”) announced in a new online FAQ that it is giving extra time for companies to repay loans they applied for and received in good faith under the initial guidance provided by the SBA to the Paycheck Protection Program (“PPP”). Originally set for May 7, 2020, the deadline to repay the loan without incurring penalties is now extended to May 14, 2020. The SBA also stated that it plans to issue “additional guidance on how it will review certification prior to May 14, 2020.” Continue reading

No Deduction for Expenses Paid with Forgiven PPP Loan Funds

One of the major business-tax relief provisions of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act is the paycheck protection program (“PPP”) loan forgiveness and the accompanying exclusion of the forgiven amounts from taxable income. Over the past month since the CARES Act’s enactment, the IRS has released guidance clarifying the interaction between PPP loan forgiveness and other provisions of the Act. However, a lingering, big-picture question regarding the deductibility of certain business expenses paid for with later forgiven PPP loan funds remained. Such expenses include mortgage interest, rent obligations, utility payments, and payroll costs—all covered uses of a PPP loan.  Continue reading

SBA Issues Potentially Overbroad Guidance Narrowing PPP Qualification Standards

Lawyers have a saying, “Bad Facts Make Bad Law.”  Recent Small Business Administration guidance regarding the Paycheck Protection Program proves it true in one more case.

Even as Congress moves to approve additional funds to the Paycheck Protection Program, the SBA issued a new FAQ in response to news stories about public companies receiving PPP money.  The FAQ states that “a public company with substantial market value and access to capital markets” may not receive PPP funding.  While understandable with respect to the companies in the headlines, it is concerning that the SBA could apply the guidance more broadly.  Doing so would cause more delays or denial in funding for smaller enterprises, and defeat Congress’ intent to support employee retention by private employers.

This is the new FAQ:

  1. Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?

Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request. Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.

We understand the political motivation behind the guidance.  We also believe applying a strict standard based on a company’s value or a company’s access to outside capital or “other sources of liquidity” is perverse.  Congress intended the PPP to motivate companies to retain employees.  Valuable companies with reserves and access to capital will still furlough or release employees, as demand for their services or products drops.  For even those companies, the PPP is therefore “necessary to support ongoing business operations,” because given the current economic landscape they would not deplete reserves or access other sources of liquidity to retain unprofitable employees.  Understanding Congress wanted employers to retain their employees, we interpret the FAQ narrowly.  We hope the SBA will as well.

Attorney James-Allen McPheeters contributed to this post. 

IRS Clarifies Interplay Between Employment Tax Deferral and Loan Forgiveness

On Friday, April 10, 2020, the IRS launched a new frequently asked questions (FAQ) page on the deferral of employment tax deposits and payments. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allows employers to defer the deposit and payment of the employer’s share of social security taxes and self-employed individuals to defer payment of certain self-employment taxes between March 27, 2020 and January 1, 2021. As discussed in our previous blog post, payment of half of these deferred amounts would not become due until December 31, 2021. The second half would be due a year later on December 31, 2022.

Such deferral is, however, prohibited for an employer who receives loan forgiveness under the CARES Paycheck Protection Program (“PPP”). Because the language of the CARES Act makes clear that employment-tax deferral is not disallowed until PPP loan forgiveness actually occurs, it appeared that employers could currently take advantage of such deferral while in the midst of the loan application and forgiveness processes. What remained more uncertain was how the IRS planned to treat previously deferred employment-tax payments once an employer did receive a decision that its lender would forgive the loan.

Question 4 of the FAQ clarifies this interplay between the employment-tax deferral and PPP loan forgiveness as follows:

  • Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer’s share of social security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan.
  • Employers who do so will not incur failure-to-deposit and failure-to-pay penalties.
  • Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer’s share of social security tax due after that date.
  • The amount of the deposit and payment of the employer’s share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the “applicable dates” (50% on December 31, 2021 and the remaining amount on December 31, 2022).

The IRS has ensured that information will be provided in the near future to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January through March 2020). Employers will not be required to make a special election to be able to defer deposits and payments of these employment taxes.

The FAQ also makes clear that the ability to defer deposit and payment of the employer’s share of social security tax is in addition to the relief provided in Notice 2020-22, which provides relief from the failure-to-deposit penalty for not making deposits of employment taxes (including taxes withheld from employees) in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act Employee Retention Tax Credit (ERTC). An employer is therefore entitled to defer deposit and payment of its share of social security tax prior to:

  • determining whether it is entitled to the paid leave credits under the FFCRA or the ERTC;
  • determining the amount of employment tax deposits that it may retain in anticipation of these credits (FFCRA and ERTC), the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits; and
  • receiving a determination of PPP loan forgiveness from its lender.

Keep in mind that an employer who has received a loan under the PPP is not eligible for the ERTC. The FAQ, however, essentially provides that employers can defer deposit and payment of their share of social security tax while in limbo with any of these relief provisions. Additionally, while deferral in anticipation of the ERTC may not be warranted (i.e., because an employer has already received a PPP loan), general deferral would still be permissible until that employer receives official notice of loan forgiveness.

Larger employers who are ineligible for the PPP loans, or employers who choose not to apply for these loans, will be able to utilize both the ERTC (if eligible based on economic decline) and employment-tax deferral. The ERTC and other credits that reduce payroll taxes will reduce the amount eligible for deferral.

VIDEO: A Conversation on Federal Stimulus Assistance for Independent Contractors

Following is a video of a short conversation between Williams Parker attorneys Thomas B. Luzier and James-Allen McPheeters about federal stimulus availability for small businesses, independent contractors, and sole proprietorships.

For more information on these programs, please contact James-Allen. Keep in mind that aid currently available can be handled directly through the Small Business Administration or with your local banker.

For the latest developments on virus-related matters and the impact on businesses, visit our COVID-19 resource page, which is updated regularly.