Applying for Loan Forgiveness under the Paycheck Protection Program

Bonnie M. Wyllie
Lukinovich APLC
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Date: August 24, 2020 (Updated as of October 15, 2020)

Executive Summary  

  • Borrowers can apply for loan forgiveness under the Paycheck Protection Program by submitting an application to their lender.  
  • The loan forgiveness application must be submitted “within 10 months after the last day of the covered period.”  
  • Within 60 days after the loan forgiveness application is submitted, the lender must determine whether the loan will be forgiven.  
  • Only loan funds applied to Small Business Administration (“SBA”)-approved purposes (“Eligible Uses”) will be forgiven.  
  • Eligible Uses include payroll costs and specific nonpayroll costs.  
  • Although the SBA has certain penalties for employers who reduced their workforce size or compensation levels, Congress, with support from the SBA, has created several safe harbors for employers.  
  • The safe harbors protect employers such as those whose operations could not resume without creating violations of Center for Disease Control (“CDC”) guidelines for controlling the spread of coronavirus.  
  • Additional Napa Legal resource on the Paycheck Protection Program are available on Napa Legal’s COVID-19 page.  
  • A simplified loan forgiveness application and an exemption from the normal loan forgiveness reduction penalties are available to borrowers who received less than $50,000 and are not part of an affiliate group that received more than $2 million in total loan funds.  

Introduction

The loan forgiveness opportunity included in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Paycheck Protection Program (“PPP”) loan is perhaps the program’s greatest feature. Indeed, many nonprofits and for-profit small businesses that might otherwise have shut down were able to stay in business because of this financial relief. In June 2020, the PPP Flexibility Act further adjusted the terms of the PPP to the benefit of borrowers, expanding the availability of loan forgiveness.  

More recently, on October 8, 2020, the Small Business Administration (SBA) issued an interim final rule creating a simpler loan forgiveness application for PPP loans of $50,000 or less and waiving the CARES §§ 1106(d)(2) and (3) loan forgiveness reduction penalty for most borrowers of loans less than $50,000.  

To prepare to apply for loan forgiveness, borrowers should understand both the process for applying for loan forgiveness and the process for calculating the forgivable amount.

Applying for PPP Loan Forgiveness

How to Apply for Loan Forgiveness

To obtain PPP loan forgiveness, the borrower must file an application. The application can be either through an SBA-issued form or through the lender’s own, SBA-compliant application. The SBA has issued three versions of its standard loan forgiveness application form: Form 3508, Form 3508-EZ, and Form 3508S. The SBA also recently published an eleven-page “Frequently Asked Questions” document clarifying key aspects of the applications.  

The Forms 3508S and 3508-EZ are streamlined applications and are only available for eligible borrowers. If your organization received a loan of less than $50,000 and is not part of an affiliate group that received $2 million or more in PPP funds (or is an organization exempt from SBA affiliation rules), the organization may be eligible for the Form 3508S.[2] To determine if your organization can use the streamlined Form 3508-EZ, review and complete the Form 3508-EZ checklist, included in the instructions.  

This whitepaper focuses primarily on the application process for borrowers who do not qualify for the Form 3508S or the Form 3508EZ.  

The full Form 3508 has three sections to be used for the calculation of the amount of loan forgiveness:

- PPP Loan Forgiveness Calculation Form (“Calculation Form”)

- PPP Schedule A (“Schedule A”)

- PPP Schedule A Worksheet (“Worksheet”)  

The application form requires specific documentation verifying the calculations to be submitted. If the borrower does not submit the required documentation with the application for loan forgiveness, then the lender cannot approve the loan forgiveness application.[3]

In addition to the loan application and supporting material, the borrower must also maintain certain internal records in the corporate file for the six years following the date the loan is forgiven or repaid in full. The borrower must grant access to these records to authorized representatives of the SBA, including representatives of its Office of Inspector General, upon request.  

When to Apply for Loan Forgiveness

When can a borrower apply for forgiveness? According to SBA’s interim final rule, “a borrower may submit a loan forgiveness application any time on or before the maturity date of the loan—including before the end of the covered period—if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness.”[4]

There is a filing deadline to apply for loan forgiveness. “If the borrower does not apply for loan forgiveness within 10 months after the last day of the covered period, or if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the date the first payment is due.” [5]

SBA Review of the Loan Forgiveness Application

Within 60 days of the submission of a complete application for loan forgiveness, the lender shall issue its decision on the application to the SBA.[6]  

If the SBA’s review indicates that the borrower did not meet the eligibility requirements under the terms of the CARES Act, the SBA guidance available at the time of the loan applications, or the terms of the PPP loan application, the SBA will rule that the borrower cannot receive loan forgiveness.[7]  

If the borrower is successful in obtaining partial or full loan forgiveness, then the amount of loan forgiveness will be considered canceled indebtedness by the lender, [8] and it shall not be included in the gross income of the borrower for income tax purposes.[9] Note, however, that if only a portion of the loan is forgiven, or if the forgiveness request is denied, the remaining balance due on the loan must be repaid before the end of the loan’s maturity date.[10]  

Calculating the Forgivable Amount  

Determining Eligibility for Loan Forgiveness  

“Eligible Uses” include certain uses of funds that can qualify a borrower for loan forgiveness.  

Only expenditures of loan funds for Eligible Uses during the “covered period” (“CP”) will qualify the organization for loan forgiveness.[11] The CP is the time frame that starts on the date the proceeds are received (the “PPP Loan Disbursement Date”) and continues for (1) the earlier of 24 weeks or December 31, 2020, or, (2) if a borrower received PPP loan proceeds before June 5, 2020, either 24 weeks or 8 weeks, at the borrower’s election.[12]

The borrower may be eligible for loan forgiveness if:  

1. During the appropriate CP, PPP funds were used exclusively for Eligible Uses (payroll costs, interest on mortgages, and/or rent and utilities).[13]

If a portion of the loan proceeds is spent on anything other than the Eligible Uses, that portion of the PPP loan will not be forgiven and must be repaid. The PPP loan has a minimum maturity date of five years at an interest rate of 1%.[14];  

AND  

2. At least 60% of the borrower’s PPP funds were used for payroll, in order to be eligible for the maximum loan forgiveness.[15]  The remaining 40% must be used for the payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), the payment on any covered rent obligation, or any covered utility payment.

Calculating the Amount of Loan Forgiveness

Determining When Eligible Uses Can Be Included

The costs used in the forgiveness calculation are those both incurred or paid during the covered period or on the next payday or billing date following the last day of the CP.[16]  

Note: One of the Eligible Uses of PPP funds is payroll costs, but the standard 8-week CP will not always align with a borrower’s payroll cycle. To address this issue, the SBA created an option for a borrower to select an Alternative Payroll Covered Period (“APCP”). The APCP is an 8- or 24- week period (56 or 168 days) that begins on the first day of the first pay period or payroll cycle following the PPP Loan Disbursement Date.[17] Only borrowers with a biweekly or more frequent payroll schedule can elect to use the APCP.[18] Additionally, borrowers can only use the APCP for payroll costs; the CP must be used for non-payroll Eligible Uses.[19]  

1. Payroll Costs. Payroll costs are incurred on the day the employee worked. If an employee has been furloughed and is still on the payroll, the payroll costs are incurred on the day that the employee would have performed work.  

For purposes of loan forgiveness, payroll costs are paid on the date the paychecks are distributed or an ACH credit transaction is originated.  

In some circumstances the last payroll cycle may not be completed before the end of the CP or APCP. The borrower may include the incurred portion in the calculation of the loan forgiveness amount, if it is paid on the next payroll date for that cycle.[20] Additionally, payroll costs incurred before the CP but paid during the CP are eligible for loan forgiveness.[21]  

2. Nonpayroll Costs. A non-payroll cost is eligible for forgiveness if it was either paid during the CP; or incurred during the CP and paid on or before the next regular billing date, even if the billing date is after the covered period. This means only the portion incurred during the CP and paid by the next billing date is eligible for forgiveness.[22]  

Computing Payroll Costs

Identifying Payroll

Eligible Uses related to payroll expenses are: [23]  

  1. Gross salary, wage, commission, or similar compensation,[24] including hazard pay and bonuses;[25]

  2. Payment of cash tips or equivalent;[26]

  3. Payment for vacation, parental, family, medical, or sick leave;[27]

  4. Allowance for dismissal or separation;[28]

  5. Payment required for the provisions of group health care benefits, including insurance premiums;[29]

  - Note:  Report on Loan Forgiveness Application, Schedule A, Line 6

  6. Payment of any retirement benefit;[30] and  

  - Note: Report on Loan Forgiveness Application, Schedule A, Line 7

  7. The payment of State or local tax assessed on the compensation of employees.[31]  

  - Note: Report on Loan Forgiveness Application, Schedule A, Line 8

Eligible Use payroll costs do not include:

  1. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period;[32] the portion that is allowable is $15,385 (8/52*$100,000) for an 8-week CP and  $20,833 (100,000/12*2.5) for a 24-week period.[33]

- Note: Only the allowable portion is entered as cash compensation on Worksheet Table 2.

  2. Employment taxes and income tax withholding [34] since the gross payroll amount has been used;

  3. Any compensation of an employee whose principal place of residence is outside of the U.S.[35]

  4. Wages already counted for the Tax Credit for Qualified Sick Leave Wages;[36] or

  5. Wages already counted for the Tax Credit for Qualified Family Leave Wages.[37]  

- Note: The total cash compensation earned by each employee during the CP or APCP is entered on Schedule A Worksheet Tables 1 or 2. [38] The total cash compensation of Worksheet Table 1, Box 1 is entered on the Schedule A, Line 1. The total allowable cash compensation on Worksheet Table 2, Box 4 is entered on the Schedule A, Line 4. [39]

  6. Compensation for Owners: The limit on compensation for owners depends upon the type of business entity: [40] (Note: this information is provided for the sake of completeness even though the information will not apply to most nonprofits.)  

   a. C-corporation owner-employee’s compensation is capped by the amount of their 2019 employee cash compensation and the employer retirement and health insurance contributions made on their behalf.

   b. S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and the employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf are not added since they are already included in their employee cash compensation.

   c. Schedule C or F filers are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit.

   d. General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and oil and gas depletion) multiplied by 0.9235.

   e. For self-employed individuals, including Schedule C or F filers and general partners, retirement and health insurance contributions are included in the net self-employment income and cannot be added to their payroll calculation.

- Note: The compensation for owners is not included in Worksheet Tables 1 or 2. The compensation for owners is computed in a separate table and the total is reported on Loan Forgiveness Application, Schedule A, Line 9.

Reductions in Full-Time Equivalency or Wages

In general, if a borrower reduces the number of employees or the average paid hours of any employees between January 1, 2020 and the end of the CP or APCP, then the amount of loan funds eligible for forgiveness will be reduced. Note that, under the Interim Final Rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules (10/8/2020), most borrowers of loans of less than $50,000 will be exempt from the reduction penalty for both decrease in staff levels and salary or wage reductions.[41] The loan forgiveness reduction is calculated based on the borrower’s full-time equivalent employees. “Full-time equivalent (“FTE”) employees” is a technical term referenced in the CARES Act itself and defined by the SBA regulations.  

The following sections outline: (1) exceptions to this general rule of loan forgiveness reduction; (2) the method for calculating FTE employees and related loan forgiveness reductions; (3) the method for calculating loan forgiveness reductions based on reductions in employee salaries; and (4) safe harbors for FTE employee reductions.  

- Note: If the borrower has not reduced the number of employees or average paid hours during the CP or APCP, check the box for “No reduction in employees or average paid hours” and enter 1.0 on Schedule A, Line 13.

1. Exceptions to the Loan Forgiveness Reduction Based on FTE Reductions. There are certain situations that will not be treated as a proportional reduction in the number of FTE employees for purposes of calculating loan forgiveness.[42]  

  a. If an employee is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the CP or APCP, the borrower may count such employee at the same level of full-time equivalency as prior to the change.  The borrower should maintain documentation to substantiate this and be prepared to provide it upon request. [43]  

  b. A borrower may have reduced an employee’s number of hours and later offered to restore the employee’s hours at the same salary, but the employee refused. The borrower is allowed to exclude the reduction in the full-time equivalent headcount that is attributable to this employee.[44] The borrower should document the following steps.

    i. The borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee);

    ii. The offer was for the same rate of pay and the same number of hours as earned by the employee in the last pay period prior to the separation or reduction in hours;

    iii. The offer was rejected by the employee;

    iv. The borrower has maintained records documenting the offer and its rejection; and

    v. The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer. [45]    

  c. There will not be a reduction in full-time equivalency if the employer can document:

    i. An inability to rehire individuals who were employees of the employer on Feb. 15, 2020; and

    ii. An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020. [46]

2. Calculating the loan forgiveness reduction based on a reduction in the number of employees.[47]

Most borrowers must also compute the average full-time equivalency for each employee during the selected CP or APCP to determine whether the borrower is subject to any loan forgiveness reduction penalty.  

First Step: Average Full-Time Equivalency for All Employees. Determine the average number of “full-time equivalency” (another technical term defined by the SBA guidance, outlined below) for each employee during the 24-week or 8-week period of the CP or APCP. [48]  

Since a full-time work week has been determined to be 40 hours, the average number of full-time equivalency for a full-time employee will be 1.0, which is 40 divided by 40. If the employee worked more than 40 hours, the full-time equivalency is capped at 1.0.  

For employees working less than 40 hours per week, the employer can divide the average number of hours paid for each employee per week by 40 to calculate the percentage FTE. An acceptable alternative is to use 0.5 for every part-time employee. [49]  

- Note: The average FTE for each employee is listed in Worksheet Tables 1 or 2. The total average FTE for all employees is reflected in either Worksheet Box 2 or Box 5. The total from Worksheet Box 2 of Table 1 is entered on Line 2 of Schedule A, and the total from Worksheet Box 5 of Table 2 is entered on Line 5 of Schedule A.  Schedule A Lines 2 and 5 are added together and reported on Line 12 of Schedule A. [50] [51]

Second Step: Average FTE for All Employees during the Reference Period. Compute the average number of FTE for each employee for the following reference periods: [52]

1. the period from February 15, 2019 to June 30, 2019, and

2. the period from January 1, 2020 to February 29, 2020

3. for seasonal employers, a consecutive 12-week period between May 1, 2019 and September 15, 2019. [53]  

A non-seasonal borrower is allowed to select as its reference period either a or b. A seasonal employer is allowed to select between a, b, or c. [54]    

- Note: There is not a table provided to make this calculation, but it is calculated for the total reference period in the same manner as Worksheet Tables 1 or 2. The average FTEs for all employees are added together to determine the total Average FTEs for the selected reference period, and this total is entered on Line 11 of Schedule A.

Third Step: FTE Reduction Quotient. Determine the percentage reduction in FTEs. The borrower must divide the average FTE employees during the CP or APCP (the numerator) by the average FTE during the selected reference period (the denominator).  

- Note: Schedule A Line 12 is the Total Average FTEs for the CP or APCP, and it is the total of Worksheet Table 1 Box 2 and Table 2 Box 5.  The FTE Reduction Quotient is calculated by dividing line 12 by line 11 of Schedule A. To put it another way, the amount calculated in the First Step above is divided by the amount calculated in the Second Step above, to calculate the FTE Reduction Quotient on Schedule A line 13. This amount carries to the Calculation Form Line 7.

If the average number of FTE during the CP or APCP is less than during the reference period and the safe harbor rules do not apply, the total eligible payroll expenses available for forgiveness are reduced proportionally by the percentage reduction in FTE. [55]  

3. Calculating the loan forgiveness reduction based on reductions in the total salary of any employee: Worksheet Table 1.  

If the borrower has not reduced the salary or wages of any employees between January 1, 2020 and the end of the CP or APCP, then the loan forgiveness reduction should not be reduced based on salary or wages.  

- Note: This means that there would be no entries in the Salary/Hourly Wage Reduction column of Worksheet Table 1.    

If a borrower reduces an employee’s salaries or hourly wages more than 25%, the reduction in the wages of that employee can reduce the amount of loan forgiveness.[56] In other words, an employer can cut an employee’s salary to 75% of its pre-pandemic level, and still receive loan forgiveness. However, if the employee’s salary is cut more than 25% so that it is less than 75% of the pre-pandemic level, a portion of the loan may not be forgiven.  

To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction. In other words, if the employer changed only the salary or hourly wages, then it is computed as a salary/wage reduction. If the employer changed only the amount of hours the employee worked, then it is counted as an FTE reduction. [57]  

The computation for the amount of the Salary/Hourly Wage Reduction is computed for each employee and entered in Worksheet Table 1.  

If an employee is paid by the hour, it appears that the calculations in the first and second steps below use the employee’s average rate per hour since the third step computes the total reduction in dollars for the CP. [58]

If an employee is paid a flat salary, the calculations in the first and second steps use the employee’s average annual salary.[59] In the third step the amount is divided by 52 weeks per year and multiplied by the number of weeks in the CP or APCP, which would either be 8-weeks or 24-weeks.

An employee’s salary must be capped at $100,000 annually. For these employees the salary is limited to $15,385 ($100,000/52 X 8) for an 8 week CP or $20,833 (100,000/12*2.5)   for a 24-week period [60] Only the allowable portion is reported as cash compensation on Worksheet Table 2.  

First Step: Determine if pay was reduced more than 25%  

(Worksheet Instructions, Page 4, Step 1.)

1a. The CP or APCP Average Annual Salary/Hourly Wage Per Employee: Enter average annual salary or hourly wage during CP of APCP. _________  

1b. The 1st Quarter Average Annual Salary/Hourly Wage Per Employee. Enter average annual salary or hourly wage between Jan. 1, 2020 and Mar. 31, 2020 ______

1c. Percentage of Reduction. Divide the value in 1a by 1b. ________

Permitted Amount of Reduction61. If 1c is 0.75 or more, there is no reduction for this employee. This means the salary/hourly wage reduction amount shown for this employee would be zero. However, if 1c is less than 0.75, the second step will need to be computed to determine if the safe harbor was met.

Second Step: Safe Harbor for Salary/Hourly Wage Reduction  

(Worksheet Instructions, Page 4, Step 2.)

Safe Harbor: If a borrower reduces an employee’s salary or hourly wage in excess of 25% between February 15, 2020 and April 26, 2020 and eliminates the reductions before December 31, 2020, there will not be a reduction in the amount of loan forgiveness. [62]  In other words, if this employer reduced an employee’s salary or hourly wage before April 26, 2020 and increased it by December 31, 2020, then the employer would compare the employee’s hourly wage on February 15, 2020 to the hourly wage on December 31, 2020, to see if the safe harbor has been met. If they are not equal, the employer would need to compute the amount of salary/hourly wage reduction.

2a. Safe Harbor Reference Salary/Wage.  Enter the annual salary or hourly wage as of Feb. 15, 2020. __________

2b. Salary or Hourly Wage Reduction. Enter the average annual salary or hourly wage between Feb. 15, 2020 and Apr, 26, 2020 ___________.  If 2b is equal to or greater than 2a, skip 2c and compute the third step.  

2c. Measuring Salary/Hourly Wage at end of Safe Harbor. Enter the average annual salary or hourly wage as of the earlier of December 31, 2020 or the date the PPP loan forgiveness application is submitted. __________

Safe Harbor Met. If 2c is equal to or greater than 2a, the Salary/Hourly Wage Reduction Safe Harbor has been met, and there is no wage reduction for this employee.  

Safe Harbor Not Met. If 2c is less than 2a, the safe harbor has not been met, and the third step needs to be calculated.  

Third Step: Determine the Amount of the Salary/Hourly Wage Reduction. (Worksheet Instructions, Page 4, Step 3.)

3a. Permissible Reduction. Multiply the 1st Quarter Annual Salary/Hourly Wage (the amount entered in 1b) by 0.75. ____________

3b. Reduction Amount for the CP/APCP annual salary/hourly wage.   Subtract from 3a the amount entered in 1a.  ____________  

  - If the employee is an hourly worker, compute lines 3c and 3d for the total dollar amount of the reduction that exceeds 25%.  

3c. Average Weekly Hours Worked. Enter the average number of hours worked per week between Jan. 1, 2020 and March 31, 2020. __________.

3d. (i) Weekly Dollar Reduction Amount. Multiply the amount entered in 3b by the amount entered in 3c. ____________  

(ii). Total Reduction Amount for the CP/APCP period. Multiply the amount in 3d(i) by 8 or 24 weeks, depending on whether 8 weeks or 24 weeks were selected for the CP/APCP __________. This is the total amount of wage reduction to be reported on Worksheet Table 1 for this employee.

  - If the employee is a salaried worker, 3e computes the total dollar amount of the reduction that exceeds 25%.

3e. Total Reduction Amount for the CP/APCP period. Multiply the amount entered in 3b by either 8 or 24 depending on whether 8 weeks or 24 weeks were selected for the CP/APCP ________. Divide this amount by 52 _________. This is the amount of the wage reduction to be reported on Worksheet Table 1 for this employee.

4. Safe Harbors for FTE Employee Reductions.

Safe Harbor 1: An employer is eligible to use this safe harbor if there is an inability to return to the same level of business activity as that on February 15, 2020 due to governmental requirements [63] related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, which were enforced during the period beginning on March 1, 2020 and ending on December 31, 2020.[64] This also includes state and local government shutdown orders that are based in part on federal guidance. [65]

- Note: If the borrower meets this safe harbor, check the box on Schedule A “FTE Reduction Safe Harbor 1” and enter 1.0 on Line 13.

Safe Harbor 2: If a borrower reduces the number of FTE employees between February 15, 2020 and April 26, 2020 and restores the pre-pandemic workforce levels before December 31, 2020,  it will not cause a reduction in the amount of loan forgiveness. [66] In this circumstance, each of these FTE employees will be treated as 1.0.  

First Step: Compute the total average full-time equivalents for the time period between February 15, 2020 and April 26, 2020. Prepare a table similar to Worksheet Table 1 or 2 listing each employee and enter each employee’s Average FTE amount. Compute the total average full time equivalency by adding together the amounts for all employees.

Second Step: Compute the total number of FTE employees for the pay period which includes February 15, 2020 using the same method as in the first step.

Third Step: If the amount computed in the second step is greater than the amount in the first step, then the FTE Reduction Safe Harbor 2 is not applicable, and the borrower must compute Schedule A Line 13.  

Fourth Step: Compute the borrower’s total number of FTE employees for the earlier of the date the application is submitted or December 31, 2020.

Fifth Step: If the amount computed in step 4 is greater than or equal to the amount computed in step 2, enter 1.0 on Schedule A Line 13 because the FTE Reduction Safe Harbor 2 has been met. If the amount in step 4 is less than the amount in step 2, then the FTE Reduction Safe Harbor 2 does not apply, and the borrower must compute Schedule A Line 13.  

Calculating Non-Payroll Costs

Identifying Nonpayroll Costs  

Eligible Uses covers certain nonpayroll costs, including mortgage, rent, and utilities.  

Defining the forgivable portion of interest on mortgages

In order for the interest payment to be forgivable, the indebtedness or debt instrument must have been incurred in the ordinary course of business. [67] In addition, it must meet the following:

1. It is a liability of the borrower;

2. It is a mortgage on real or personal property; and

3. It was incurred before February 15, 2020. Payments on refinanced mortgages will be eligible for loan forgiveness if the original mortgage loan existed prior to February 15, 2020. [68]

Forgiveness will not apply to any prepayment of interest or payment of principal on the mortgage obligation. [69]  

- Note: The business mortgage interest payments are reported on Line 2 of the PPP Loan Forgiveness Calculation Form.

Defining the forgivable portion of rent

In order for the rent payments to be forgivable, the leasing agreement must have been in force before February 15, 2020. [70] Payments on renewed leases will be eligible for loan forgiveness if the original lease existed prior to February 15, 2020. [71]  

- Note: The business rent or lease payments are reported on Line 3 of the PPP Loan Forgiveness Calculation Form.

Defining the forgivable portion of utilities

In order for a utility payment to be forgivable, it must be payment for any of the following services, which began before February 15, 2020: [72]

1. Electricity

2. Gas

3. Water

4. Transportation

5. Telephone, or  

6. Internet access  

- Note: The business utility payments are reported on Line 4 of the PPP Loan Forgiveness Calculation Form.

Legal Disclaimer: This white paper contains general educational information related to legal concepts, but this information does not constitute legal advice.  Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with NLI, NLI is not a law firm and does not undertake legal representation on behalf of any clients.  Further, no licensed attorney working with or on behalf of NLI agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.

___________

Ms. Wyllie is the Director of Tax Services at O’Neill, a Professional Accounting Corporation in New Orleans Metropolitan Area. Ms. Wyllie earned herJuris Doctor from Loyola University and her LL.M. degree in taxation from Georgetown University Law Center.

[2] PPP Interim Final Rule Additional Revisions to Loan Forgiveness and Loan Review Procedures (10/08/2020) p. 6.

[3] Public Law No: 116-136 § 1106(f); PPP Interim Final Rule on Loan Forgiveness(5/22/2020) p. 23

[4] PPP Interim Final Rule Revisions to Loan Forgiveness and Loan Review (6/22/2020)p. 9.

[5] PPP Interim Final Rule Revisions to Loan Forgiveness and Loan Review (6/22/2020)p. 9.

[6] Public Law No: 116-136 § 1106(g); PPP Interim Final Rule on Loan Forgiveness(5/22/2020) p. 7

[7] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 8

[8] Public Law No: 116-136 § 1106(c)(1)

[9] Public Law No: 116-136 § 1106(g)

[10] Interim Final Rule on Loan Forgiveness(5/22/2020) p. 8

[11] PublicLaw No: 116-136 § 1106(a)(3).

[12] Paycheck Protection Program Flexibility Act, PublicLaw 116-142. The twenty-four week option was not included in the originalCARES Act, but was later created by the Paycheck Protection Program FlexibilityAct (“PPPFA”), which was passed on June 5, 2020 to increase the borrower’s ability to qualify for full loan forgiveness. PPPFA provides for a 24-week covered period beginning with the date the loan proceeds were received. The 24-week period cannot extend beyond December 31,2020. Stated another way, if a borrower receives the loan proceeds at any point after July 16, 2020, then it will not receive the full 24-week period because the covered period must end on December 31, 2020.

[13] Public Law No: 116-136 § 1106(a)(7)

[14] Paycheck Protection Program Flexibility Act 116 H.R. 7010; PPP Revisions toLoan Forgiveness Interim Final Rule and SBA Loan Review Procedures InterimFinal Rule (6/22/2020) p. 7.

[15] Paycheck Protection Program Flexibility Act 116 H.R. 7010; PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule (6/22/2020) p. 7.

[16] Public Law No: 116-136 § 1106(b); PPP Revisions to Loan Forgiveness InterimFinal Rule and SBA Loan Review Procedures Interim Final Rule (6/22/2020) p.10-13, p. 15-16; PPPLoan Forgiveness FAQs, p. 2 (08/11/2020).

[17] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 11-12.

[18] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule (6/22/2020) p. 12.

[19] Paycheck Protection Program Loan Forgiveness Application p. 1

[20] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 10-13.

[21] PPPLoan Forgiveness FAQs, p. 2 (08/11/2020).

[22] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 15; PPPLoan Forgiveness FAQs, p. 6 (08/11/2020).

[23] Public Law No: 116-136 § 1106(a)(8)

[24] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(AA)

[25] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 11

[26] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(BB)

[27] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(CC)

[28] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(DD)

[29] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(EE)

[30] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(FF)

[31] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(I)(aa)(GG)

[32] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(II)(aa)

[33] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 13-15. The adjustment for those employees making more than $100,000 is computed on Table 2 of the PPP Loan Forgiveness Application Revised June 16, 2020 PPP Schedule A Worksheet; PPP Loan Forgiveness FAQs, p. 4 (08/11/2020).

[34] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(II)(bb).

[35] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(II)(cc)

[36] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(II)(dd)

[37] Public Law No: 116-136 § 1102(a)(2)(A)(viii)(II)(ee)

[38] PPP Loan Forgiveness Application Revised June 16, 2020 PPP Schedule A WorksheetTables 1 or 2.

[39] PPP Loan Forgiveness Application Revised June 16, 2020 PPP Schedule A Lines 1 and 4.

[40] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 13-14.

[41] PPP Interim Final Rule Additional Revisions to Loan Forgiveness and Loan ReviewProcedures (10/08/2020) p. 6.

[42] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 19.

[43] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 22

[44] InterimFinal Rule on Loan Forgiveness (5/22/2020) p. 14

[45] PPP Revisions to Loan ForgivenessInterim Final Rule and SBA Loan Review Procedures Interim Final Rule(6/22/2020) p. 20-22.

[47] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 22.

[48] Paycheck Protection Program Flexibility Act 116 H.R. 7010

[49] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 16-17

[50] PPP Loan Forgiveness Application Revised June 16, 2020 PPP Schedule A Worksheet.

[51] PPP Loan Forgiveness Application Revised June 16, 2020PPP Schedule A.

[52] Public Law No: 116-136 § 1106(d)(2)(A)

[53] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 16; Loan ForgivenessApplication Revised June 16, 2020 Instructions for PPP Schedule A page3 line11.

[54] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 16

[55] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 16

[56] Public Law No: 116-136 § 1106(d)(3)

[57] Interim Final Rule on Loan Forgiveness (5/22/2020) p. 20

[58] SBA Paycheck Protection Program Loan Forgiveness Application

[59] SBA Paycheck Protection Program Loan Forgiveness Application

[60] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule (6/22/2020) p. 13-15.

[61] Public Law No: 116-136 § 1106(d)(3)

[62] Public Law No: 116-136 § 1106(d)(5); Paycheck Protection Program FlexibilityAct 116 H.R. 7010; PPP Revisions to Loan Forgiveness Interim Final Rule and SBALoan Review Procedures Interim Final Rule (6/22/2020) p. 17.

[63] The governmental agencies or officials providing these requirements or guidance are: Secretary of Health & Human Services, Director of the Centers forDisease Control & Prevention, or the Occupational Safety & HealthAdministration. PPP Revisions to Loan Forgiveness Interim Final Rule and SBALoan Review Procedures Interim Final Rule (6/22/2020) p. 22.

[64] Paycheck Protection Program Flexibility Act 116 H.R. 7010; PPP Revisions toLoan Forgiveness Interim Final Rule and SBA Loan Review Procedures InterimFinal Rule (6/22/2020) p. 19-22.

[65] PPP Revisions to Loan Forgiveness Interim Final Rule and SBA Loan ReviewProcedures Interim Final Rule (6/22/2020) p. 22.

[66] CARES § 1106(d)(5); Interim Final Rule on Loan Forgiveness (5/22/2020) p. 21;Paycheck Protection Program Flexibility Act 116 H.R. 7010;  PPP Revisions to Loan Forgiveness InterimFinal Rule and SBA Loan Review Procedures Interim Final Rule (6/22/2020) p. 17.

[67] Public Law No: 116-136 § 1106(a)(2)

[68] PPP Loan Forgiveness FAQs, p. 7 (08/11/2020).

[69] Public Law No: 116-136 § 1106(b)(2)

[70] Public Law No: 116-136 § 1106(a)(4)

[71] PPPLoan Forgiveness FAQs, p. 7 (08/11/2020).

[72] Public Law No: 116-136 § 1106(a)(5)