PILLA TALKS TAXES - Featured Article(s)
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THE PPP LOAN FORGIVENESS PROCEDURES
The Forms are Now Available
On June 17, following the passage of the Paycheck Protection Program (PPP) Flexibility Act (Flexibility Act), the Small Business Administration (SBA) released its updated loan forgiveness application. The form is SBA Form 3508, Loan Forgiveness Application Revised June 16, 2020. The SBA also created a new form, Form 3508EZ, which is a simplified forgiveness application. The forms and instructions, as well as other PPP information from the U.S. Treasury, are available here:
https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
The simplified Form 3508EZ is designed to streamline the process for borrowers. It can be used by:
- Sole proprietors, independent contractors and other businesses who had no employees at the time the of loan application and did not include any employees’ salaries in the computation of their loan amount, and
- Businesses that did not reduce employee compensation by greater than 25% during the covered period (discussed below) compared to January 1 – March 31, 2020 (excluding employees who received, during any single pay period in 2019, annualized compensation of more than $100,000) and which businesses also meet one of the following criteria:
1. They did not reduce the number of employees or the average hours per employee between January 1, 2020 and the end of the covered period (subject to certain exceptions), or
2. They were unable to operate at the same level of business activity as before February 15, 2020, due to compliance with COVID-19 guidance or requirements from Health and Human Services, the CDC, or OSHA.
See the instructions for the form, available at the above link.
When to Apply for Loan Forgiveness
You may submit a loan forgiveness application any time on or before the maturity date of the loan if you used all of the PPP loan proceeds you received. You can submit the application even before the end of the “covered period.” The covered period is the eight-week or 24-week period of time in which the loan proceeds must be used (discussed more fully later in this article).
Recall that initially, all PPP funds had to be used within eight weeks from the date of funding. However, the Flexibility Act extended that period to 24 weeks, or December 31, 2020, whichever is the earlier. For PPP loans funded before June 5, 2020, the borrower and lender can agree to use either the eight-week or 24-week period. For PPP loans funded on or after June 5, the 24-week period applies.
If you do not apply for loan forgiveness within ten months after the last day of the covered period, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred. At that point, you must begin making payments. If this occurs, your lender must notify you of the date the first payment is due. You have five years to repay any part of the loan that is not forgiven, per §3(c) the Flexibility Act.
How to Apply for Loan Forgiveness
To receive loan forgiveness, you must complete and submit the Loan Forgiveness Application to your lender. The application does not go to the SBA. Your lender may use its own form to facilitate online submissions. Follow the instructions provided by your lender as to the specific manner of submitting the form.
The lender will review the application and make a decision regarding loan forgiveness. The lender has 60 days from receipt of a complete application to issue a decision to the SBA. If the lender determines that you are entitled to forgiveness of the loan in whole or in part, the lender then submits a request to the SBA for payment of the loan. That is, the SBA reimburses the lender for the loan amount forgiven under law.
At that point, the SBA may review the application and all supporting documents (discussed below) to ascertain whether forgiveness is appropriate. If it agrees to forgiveness in whole or in part, the SBA then pays the forgiveness amount directly to the lender. This must be done within 90 days after the lender issues its decision to the SBA.
In applicable cases, the SBA will deduct EIDL Advance Amounts from the forgiveness amount. Recall that you do not get forgives of PPP loans to the extent that you received an Advance Amount (that is, a grant) from the SBA under its EIDL loan program. See: §1110(e)(6) of the CARES Act, discussed in April/May issue of PTT.
What if the Loan is Not Forgiven?
If the SBA determines that you were ineligible for the PPP loan for any reason (including, for example, because you lacked adequate basis for the certifications made in your PPP loan application, as discussed more fully in the next article), the loan will not be forgiven.
At that point, any portion of the loan that is not forgiven must be repaid on or before the maturity date of the loan. The lender is responsible to notify you of this decision and the date on which your first payment is due.
*The above is part of an article from the August 2020 issue of Pilla Talks Taxes Newsletter. The rest of the article covers these important questions:
Payroll Costs Eligible for Loan Forgiveness
What is the “Alternative Covered Period?”
Caps on Forgivable Payroll Compensation
Payment of Non-payroll Costs
Potential Reduction of the Forgiveness Amount
Exemptions for Failure to Restore Employees
Documents Required
Conclusion
Review the loan forgiveness application and instructions carefully. They walk you through the process of computing the forgiveness amount that’s available under your circumstances. If necessary, you can get help from your lender or tax pro to get you through the process.
*Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. https://taxhelponline.com/subscriber-login.html
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