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PPP – Two Interim Rules Issued By SBA On Friday, May 22

The SBA issued two interim final rules last Friday, May 22 addressing PPP loan forgiveness, loan review procedures, and borrower and lender responsibilities.

 

Although the two interim final rules provide some additional information and guidance, there are two critical issues that were not addressed: Potential extension of the 8 week covered period, and the requirement that PPP borrowers spend at least 75% of the funds on payroll costs to qualify for full loan forgiveness are the focus of multiple bills currently being considered in Congress.

 

 

FIRST INTERIM FINAL RULE

 

This rule addresses loan forgiveness, primarily by providing more detailed guidance and explanation of the previously released Loan Forgiveness Application and Instructions

 

There are, however, several pieces of new and noteworthy information:

  • Confirmation that “if an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation”.
  • Clarification of the “paid and incurred” language related to non-payroll costs using the following example:
    • A borrower’s covered period begins on June 1 and ends on July 26. The borrower pays its May and June electricity bill during the covered period and pays its July electricity bill on August 10, which is the next regular billing date. The borrower may seek loan forgiveness for its May and June electricity bills, because they were paid during the covered period. In addition, the borrower may seek loan forgiveness for the portion of its July electricity bill through July 26 (the end of the covered period), because it was incurred during the covered period and paid on the next regular billing date.
    • Based on the example, companies can count expenses that were incurred prior to the covered period, but paid within the covered period, IN ADDITION TO expenses incurred and paid during the covered period, and incurred during the covered period but paid by the next regular billing date.
  • An administrative convenience option for the calculation of FTEs was provided allowing borrowers to “elect to use a full-time equivalency of 0.5 for each part-time employee”. If elected, this option must be consistently applied for all part-time employees during the covered period and reference period.
  • Clarification of treatment of FTE reductions related to employee actions or request as follows:
    • When an employee of the borrower is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period or the alternative payroll covered period (FTE reduction event), the borrower may count such employee at the same full-time equivalency level before the FTE reduction event when calculating the section 1106(d)(2) FTE employee reduction penalty.

 

SECOND INTERIM FINAL RULE

 

This rule provides guidance with respect to the SBA loan review process as well as the responsibilities of both borrowers and lenders in the process.

 

Here are some significant provisions:

  • SBA may review any PPP loan as the Administrator deems appropriate.
  • SBA may undertake a review at any time, up to six years after the date the loan is forgiven or repaid in full.
  • If a loan is selected for review by SBA, the following representations and statements can be included in the review:
    • Borrower eligibility
    • Loan amounts and use of proceeds
    • Loan forgiveness amounts
  • If SBA determines that a borrower is ineligible for the PPP loan, SBA will direct the lender to deny the loan forgiveness application. Further, if SBA determines that the borrower is ineligible for the loan amount or loan forgiveness amount claimed by the borrower, SBA will direct the lender to deny the loan forgiveness application in whole or in part, as appropriate. SBA may also seek repayment of the outstanding PPP loan balance or pursue other available remedies.
  • SBA intends to issue a separate interim final rule establishing a process to appeal a determination that the borrower is ineligible for a PPP loan or ineligible for the loan amount or the loan forgiveness amount claimed by the borrower.
  • Loan Forgiveness Process for Lenders:
    • Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application. Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness. For example, minimal review of calculations based on a payroll report by a recognized third-party payroll processor would be reasonable. By contrast, if payroll costs are not documented with such recognized sources, more extensive review of calculations and data would be appropriate.
    • As stated in paragraph III.3.c of the First Interim Final Rule, the lender does not need to independently verify the borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs.
  • Timeline for lender’s decision on a loan forgiveness application (no changes)
    • The lender must issue a decision to SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower.
    • SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA.

 

Our team will continue to monitor this for further developments and will be updating you as soon as we receive more information.

SBA Issues Interim Final Rule on Loan Increases

The SBA issued an interim final rule on Wednesday related to possible PPP loan amount increases. Some PPP loans were approved to partnerships, limited liabilities taxed as partnerships, or seasonal employers before the additional guidance was issued and, as a result, those businesses may not have received PPP loans in the maximum amount for which they are eligible.

 

This interim final rule authorizes all PPP lenders to increase existing PPP loans to partnerships, limited liability companies taxed as partnerships, or seasonal employers to include appropriate amounts to cover partner / member compensation in accordance with the interim final rule posted on April 14, 2020, or to permit the seasonal employer to calculate its maximum loan amount using the alternative criterion posted on April 28, 2020.

 

PARTNERSHIPS / LIMITED LIABILITY COMPANIES

 

If a partnership / LLC received a PPP loan that only included amounts necessary for payroll costs of the partnership’s / LLC’s employees and other eligible operating expenses, but did not include any amount for partner / member compensation*, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount to include appropriate partner / member compensation.

 

* As set forth in the interim final rule posted on April 14, 2020, a partner in a partnership may not submit a separate PPP loan application as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership.

 

SEASONAL EMPLOYERS

 

If a seasonal employer received a PPP loan before the alternative criterion for such employers was posted on April 28, 2020, and would be eligible for a higher maximum loan amount under the alternative criterion, the lender may electronically submit a request through SBA’s E-Tran Servicing site to increase the PPP loan amount.

IRS Explains How Ineligible Taxpayers Should Return Stimulus Payments

The IRS has posted information on how people who weren’t supposed to receive their economic impact payments for the coronavirus pandemic should return the money.

 

The CARES Act included provisions for sending economic impact payments of at least $1,200 to individuals, and $2,400 to married couples, plus $500 per dependent child.

 

The program, however, has been seen some issues since it was rolled out. The IRS had to rely on information from taxpayers’ 2018 and 2019 tax returns to send the money. In some cases, the IRS sent money to the families of deceased taxpayers or people who live abroad and don’t qualify for the payment. Undocumented and incarcerated taxpayers also aren’t considered to be eligible.

 

Frequently Asked Questions page has been setup on the IRS website about the economic impact payments, and information has been added about which taxpayers are ineligible and how to return the payments if money was received.

 

If the payment was a paper check, the IRS gave the following instructions:

 

  1. Write “Void” in the endorsement section on the back of the check.

 

  1. Mail the voided Treasury check immediately to the appropriate IRS location listed below.

 

  1. Don’t staple, bend, or paper clip the check.

 

  1. Include a note stating the reason for returning the check.

 

If the payment was a paper check and the taxpayer has cashed it, or if the payment was a direct deposit, the IRS recommended that taxpayers:

 

  1. Submit a personal check, money order, etc., immediately to the appropriate IRS location.

 

  1. Write on the check/money order made payable to “U.S. Treasury” and write 2020EIP, and the taxpayer identification number (Social Security number, or individual taxpayer identification number) of the recipient of the check.

 

  1. Include a brief explanation of the reason for returning the payment.

 

Further information on returning payments and ineligible recipients can be found on the IRS website here. 

 

The IRS has not issued clear penalties for those who do not return these payments. At this time, it appears the IRS is strongly recommending the return of payments, however, it is not suspected they will pursue individuals legally. This has not been confirmed.

We will continue to monitor this for additional updates and keep you informed on any changes. Please contact your Whalen advisor for further questions regarding this announcement.

PPP Safe Harbor Date Extended to May 14

The SBA and U.S. Department of the Treasury published FAQ 43 yesterday that extended the safe harbor loan prepayment date from May 7, 2020 to May 14, 2020.

 

The complete FAQ 43 reads as follows:

 

Question: FAQ #31 reminded borrowers to review carefully the required certification on the Borrower Application Form that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” SBA guidance and regulations provide that any borrower who applied for a PPP loan prior to April 24, 2020 and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. Is it possible for a borrower to obtain an extension of the May 7, 2020 repayment date?

 

Answer: SBA is extending the repayment date for this safe harbor to May 14, 2020.

 

Borrowers do not need to apply for this extension. This extension will be promptly implemented through a revision to the SBA’s interim final rule providing the safe harbor.

 

SBA intends to provide additional guidance on how it will review the certification prior to May 14, 2020.

 

We will continue to monitor this for additional updates and keep you informed. Please visit the COVID-19 section of the Whalen & Company website or contact your Whalen advisor for additional details regarding this extension.

 

Trump Signs Additional Small Business Coronavirus Relief Bill

President Trump has just signed a $484 billion interim coronavirus bill into law that includes additional money for the small-business loan program, as well as more funding for hospitals and testing.

The bill passed the Senate earlier this week and was approved by the House yesterday.

It includes more than $320 billion for the Paycheck Protection Program, or PPP, created by the CARES Act, which was passed late last month.

The PPP, which provides forgivable loans to small businesses that keep their employees on the payroll, had quickly run out of money due to high demand

About $60 billion of the additional PPP funding will be set aside for businesses that do not have established banking relationships, such as rural and minority-owned companies.

The bill also provides $60 billion in loans and grants for the Small Business Administration’s disaster relief fund, $75 billion for hospitals and $25 billion for coronavirus testing.

Another expansive round of coronavirus legislation is expected to be released in the coming weeks. We will continue to monitor this and keep you updated on any new information.

If you think your business is eligible for assistance and has not already received funding through this program, we are happy to help guide you through the process.

 

As always, feel free to reach out to your Whalen advisor with any questions on this new bill or anything else you may have questions about during this time.