CARES Act PPP/SBA loans provide that qualifying costs (payroll, rent, interest and utilities) paid or incurred during the 8 week “covered period” may qualify for partial to complete “loan forgiveness” based on an employer retaining and hiring/rehiring employees during the 8 week “covered/forgiveness” period, following receipt of the PPP loan. As the law is being interpreted now, the SBA indicates that the 8 week period begins on the very day in which the employer receives their PPP loan—-so an employer counts 56 days from the day of loan receipt and that period becomes the timeframe in which eligible costs must be paid/incurred—–with the employer doing all they can to squeeze eligible costs into that precise 56 day period of time. Following are comments and links to 2 very large trade associations which both are lobbying for adjustments to this 8 week period of time, and prompt responses since the clock has already been ticking for many small employer PPP loans.
What Does the AICPA Say about This 8 Week Covered Period for Forgiveness of Costs?
The American Institute of CPA’s (AICPA) has written a letter to the SBA/Treasury Department with various comments and recommendations about PPP loans, to include suggestions for documents an employer should provide to their SBA lender for both the PPP loan application and the subsequent “forgiveness” documentation after the 8 week post loan period of time. Part 2 of their letter recommends that the 8 week “forgiveness period” align with an employer’s pay schedule, so that employers do not need to adjust their pay schedules or squeeze extra payrolls in to meet the 56 day forgiveness period. The AICPA also is recommending that the 8 week period not commence until AFTER the employer can open their operations, if they have been closed by government order.
What Does the National Restaurant Association Say about the 8 Week Period?
The National Restaurant Association (NRA) has sent a letter to the SBA/Treasury Department recommending that the 8 week “covered/forgiveness” period start no earlier than 3 weeks AFTER the employer can reopen their business operations. The NRA also has many other recommendations specific to restaurants, to include an adjustment so that more than 25% of eligible costs can be spent on rent, interest, and utilities, with less than 75% spent on payroll costs
PPP Loan Forgiveness is Not Really Tax-Free
The IRS just released Notice 2020-32 which indicates that even though the CARES Act exempts the PPP loan forgiveness from taxable income, the costs which are funded by PPP loan forgiveness are not tax-deductible. So, the net impact of this announcement is that the PPP loan forgiveness is actually “taxable”, to prevent an employer receiving tax-free funds and also deducting their business expenses paid from those tax-free funds—–thought that was too good to be true!
Further Clarification Needed ASAP
The SBA/Treasury needs to quickly come up with more clarification about various aspects of the PPP loan and forgiveness, so that employers can project and plan their PPP loan forgiveness strategy. Many employers have already received their PPP loans and are not exactly sure how to plan a strategy—-is payroll based on paydate or pay period (not clear since the CARES Act refers to payroll costs “payments or costs incurred”—-“payments” are based on a cash basis of accounting and “costs incurred” is an accrual method of accounting. Many believe that “rent” pertains to rental of either real estate or personal property (equipment, vehicles), “interest” pertains to both building loan interest plus any other business interest for loans in existence as of February 15, 2020, and the SBA needs to clarify precisely what is included in “utilities”, in particular the mysterious “transportation” word mixed in with gas, water, etc examples of “utilities”
I believe the SBA ‘s clarification is slow as they grapple with the “larger issues” such as when the 8 week “forgiveness period” starts—as well as clarification as to “cash or accrual” pertaining to “payroll costs”
AccuPay will stay on top of further clarification as to PPP loans, and will communicate details as they become clear (or close to clear!!)
If you have questions or ideas on any aspect of “forgiveness”, please email firstname.lastname@example.org. This PayDay is based on our understanding of the forgiveness provisions of the PPP loans, much of which has not been clarified. We will continue following developments in this area as FAQ’s and Treasury interpretations are released.