Organization: MCAA

On August 4, 2020, the Small Business Administration (SBA), in conjunction with the Treasury Department, released 23 frequently asked questions (FAQs) regarding loan forgiveness under the Paycheck Protection Program (PPP).

The FAQs, released approximately one week ahead of the SBA’s opening its loan forgiveness application portal, covers general questions surrounding the process and the type and amount of costs that can be included in the loan forgiveness application. Some of the FAQs confirm previously-stated positions and represent logical extensions of prior guidance, and others contradict prior guidance.

This article focuses on the most salient points of the FAQs and highlights the departures from prior SBA guidance or prevailing interpretations.

General Loan Forgiveness FAQs

• Sole proprietors, independent contractors and self-employed individuals with no employees can use the EZ loan application.
• Borrowers are not required to make loan payments prior to their receipt of a decision on their loan forgiveness application, provided they the application is filed within 10 months of receipt of the loan. Interest accrues from the date of receipt of the loan, but only on the part of the loan that is not forgiven.

Payroll Cost FAQs

• There is no change to the paid or incurred rule as applied to payroll costs.
  • Paid – payroll costs that are incurred prior to a borrower’s covered period (CP) but paid during the CP are includable.
  • Incurred – payroll costs that are incurred during the CP but paid on or before the next regular payroll date after the end of the CP are includable.
• Cash compensation is determined using gross payroll amounts. For purposes of the $100,000 annualized limitation on cash compensation, all forms of cash compensation should be considered, including wages, tips, commissions, bonuses and hazard pay.
• Employee group health care costs are includible to the extent paid by the employer during the CP for coverage during the CP, but not for coverage outside the CP. This narrowing of the “paid” rule contradicts prior SBA guidance and creates a difference in the treatment between cash compensation and employee group health care costs.
• No forgiveness will be provided for retirement benefits accelerated from periods outside the CP. This too represents a narrowing of the “paid” rule and contradicts prior SBA guidance.
• The FAQs confirmed prior guidance that the maximum owner compensation amount for a 24-week CP is $20,833 in total across all businesses, but it added that borrowers are free to choose how to allocate such amount among their businesses.
• Changes were made to the calculation of the owner compensation limits by business type. Below are the new rules.
  • C Corporations: cash compensation relating to a C corporation’s shareholder/employees is limited to 2.5 months of their 2019 cash compensation (for a 24-week CP), subject to a cap of $20,833. The corporation also is eligible for forgiveness on its group health care costs, state/local employment taxes, and retirement contributions capped at 2.5 months of the 2019 retirement contribution amounts.
  • S Corporations: cash compensation relating to an S corporation’s shareholders/employees is limited to 2.5 months of their 2019 cash compensation (for a 24-week CP), subject to a cap of $20,833. The corporation also is eligible for forgiveness on its state/local employment taxes, retirement contributions capped at 2.5 months of the 2019 retirement contribution amount, and health care contributions for owners owning less than 2% of the stock of the S corporation (or family members of such owners). Group health care costs are not eligible for forgiveness for owners or for family members of owners holding at least 2% of the S corporation’s stock.
  • Self-Employed Schedule C (or Schedule F) Filers: forgiveness is capped at 2.5 months of 2019 net profit as reported on Schedule C, line 31. No forgiveness may be obtained for group health care costs, retirement contributions, or state/local employment taxes.
  • General Partners: forgiveness is capped at 2.5 months of 2019 net earnings from self-employment (on Schedule K-1, box 14a) multiplied by .9235, and payment of this amount must be made during the CP. No forgiveness may be obtained for group health care costs, retirement contributions, or state/local employment taxes. The partners’ 2019 Schedules K-1 must be submitted along with the partnership’s loan forgiveness application.

If you have any questions regarding the loan forgiveness process, please contact a member of Withum’s SBA Financial Assistance Services Group.

Nonpayroll Cost FAQs

• There is no change to the paid or incurred rule as applied to nonpayroll (i.e., overhead) costs.
• No change to the definition of a covered mortgage in the CARES Act, but the FAQs state that interest on an unsecured line of credit is not eligible for forgiveness because the loan is not secured by real or personal property.
• The renewal of a lease that was in place prior to February 15, 2020, will not affect loan forgiveness for the rental payments on such renewed lease.
• Additional color is provided to the previous guidance that “transportation” expenses include gasoline for a borrower’s vehicle. The FAQs provide that “transportation” expenses include transportation utility fees assessed by state and local government.

Headcount and Wage Reduction FAQs

• The SBA previously announced a safe harbor with regard to headcount reductions where the employer made an offer of reemployment that was rejected by an employee. The FAQs add that borrowers must demonstrate both an inability to hire similarly-qualified individuals on or before December 31, 2020, and that they informed the relevant state unemployment office of the offer within 30 days of the employee’s rejection of the offer.
• With regard to salary/wage reductions, the FAQs reiterate that the borrower should only take into consideration decreases in salaries and wages, and not additional compensation such as bonuses, commissions, etc.

The FAQs provide additional guidance for borrowers, but hopefully Congress acts to further limit the loan forgiveness process either by eliminating the requirement to apply for certain loan sizes or by further streamlining the application process. Unless it does, the SBA plans to open its loan forgiveness application portal in the next few days. To the extent borrowers are left to make reasonable assumptions about the operative rules, we continue to encourage full disclosure as part of the loan forgiveness application process.

Alston & Bird have released their August 10 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Alston & Bird have released their August 3 COVID-19 update, including the latest news on emergency funding, administrative and regulatory actions, workplace and home issues, and many other topics, as well as to links to all their past updates.

Are your company’s COVID-19 temperature and symptom screeners properly trained? To protect your company as much as possible from complaints, lawsuits, local labor issues, etc., it is critically important to:

• Establish a consistent process for conducting such screening and excluding symptomatic individuals to promote workplace
  safety;
• Adopt measures to mitigate the risk of claims under laws related to discrimination and medical privacy; and
• Be mindful of employee relations considerations.

Temperature and symptom screeners play an important role in accomplishing these objectives, so it’s a good idea to ensure that they are properly trained to take temperatures and screen for symptoms. MCAA’s new training resource, COVID-19 Temperature and Symptom Screener Training, will help you provide the proper training.

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Second Round of PPP Loans:  There has been a lot of news swirling online that new legislation will open the door for borrowers to get a second PPP loan.  Also there is more chatter that automatic forgiveness for certain loans is on the horizon. It appears as though early August may be the target for new legislation if it comes. Details on this are fluid to say the least, but it looks like both Republicans and Democrats are on the same page that the PPP is an effective tool that they want to use as part of upcoming stimulus programs.

SBA Issues Procedural Notice on Forgiveness Process:  The SBA released a notice that provides clarification to lenders on how they should submit applications to the SBA for “final approval” after the lender has reviewed and approved a borrower’s forgiveness application. The highlight in this document is that the SBA indicated it will be using a third party software vendor to develop its portal, which will not be up and running until August 10^th, so lenders will need to hold any applications until that time.  

The SBA further clarified that it may delay the opening of its portal further if any new legislation impacts the forgiveness process.  Withum has long believed Congress or the SBA would choose a loan threshold (e.g., loans of $250,000 or less) and grant “automatic” forgiveness to those borrowers, requiring only a signed certification that the funds were used properly. This would drastically reduce the amount of applications that the SBA and lenders would need to review. 

Withum does not have any official guidance or information on the legislative proposals reported in the press in past day or two (as noted above), but they think it may be prudent to wait to submit your application to your lender until a legislative consensus emerges. As a reminder, lenders have 60 days to process your loan forgiveness application and submit their decision to the SBA, and the SBA has 90 days to authorize the forgiveness amount.

PPP and M&A:  Withum often gets questions regarding how the sale of a business or the acquisition of another entity may impact a borrowers PPP loan and ability to obtain forgiveness. Withum put together an article addressing some of the complexity that may arise from these transactions, as well as how they impact the employee retention tax credit.

Reminder Section:  (what should I be doing):

• Talk to your payroll company about claiming the employer payroll tax deferral and employee retention credits (ERC) that were made available in the CARES Act.
• Talk to your payroll company about claiming the qualified sick/family leave refundable tax credits (from FFCRA, passed prior to the CARES Act).
• Consider speaking with your lender to discuss changes to terms of existing debt facilities.
• If you have already received a PPP loan, start forecasting how you intend to spend the funds and how you can qualify for the highest amount of loan forgiveness possible.  If you are not forecasting 100% loan forgiveness, then most likely you should seek assistance regarding your particular situation.  Withum believes the vast majority of borrowers should expect and plan to receive 100% loan forgiveness.

CDC Guidelines for Discontinuing COVID-19 Isolation & Precautions – For Non-Healthcare Settings – July 2020

Recent research indicates that individuals with mild to moderate cases of COVID-19 remain infectious no longer than 10 days after symptoms began; and individuals with severe illness or those who are severely immunocompromised remain infectious no longer than 20 days after symptoms began.

Based on these findings, the CDC has made changes to their guidelines regarding discontinuing COVID-19 isolation and precautions for non-healthcare settings. The highlights of these changes include the following:

• Decision makers should use a symptom-based strategy for decision making. Using a test-based strategy is no longer recommended, except to discontinue isolation or other precautions earlier than would occur under the symptom-based strategy that follows.
• Persons with COVID-19 who have symptoms and were directed to care for themselves at home may discontinue isolation under the following conditions:
  • At least 10 days have passed since symptom onset; and
  • At least 24 hours have passed since resolution of fever without the use of fever-reducing medications; and
  • Other symptoms have improved.
• Infected individuals who never develop COVID-19 symptoms may discontinue isolation and other precautions 10 days after the date of their first positive real-time qualitative test for the virus.
• The test-based strategy may still be appropriate for severely immunocompromised individuals. Consult with infectious disease experts for more information.

These recommendations will prevent most, but cannot prevent all, instances of secondary spread. 

VIEW GUIDELINES