SBA’s LOAN FORGIVENESS APPLICATION FORM 3508—PPP Loans
On May 16, the SBA issued an 11 page PPP loan forgiveness application form, which you will need to provide to your bank at the end of the 8 week covered period. We encourage you to study this carefully and begin filling out the necessary information.
The form provides some clarity but also adds even more confusion:
- There is no need to have a payroll run on the 56th day of the covered period. You can include the last days of your payroll period that fall in the covered period, even if paid after the 56th day.
- If you pay bi-weekly or more frequently, you can elect to use an alternative 8 week period to match your pay periods to the 56 days. This is only for payroll. See page 1.
- Other bills, such as utilities, which are incurred in the 56 day period, but are paid after the period, can be included if paid on the next regular billing cycle.
- There are two alternative and simple definitions of FTEs on page 7.
- No owner can give himself or herself a raise during the 8 week covered period, when compared to 2019. See first representation on page 4.
- There are no prohibitions against hiring family members or giving any employee (except an owner) a raise during the covered period. However, further guidance could be coming.
- The 75% rule is not “all or nothing.” This is great news. A simple example: The loan amount is $100,000 and only $70,000 is spent on payroll. That simply means that allowable non-payroll items are limited to $23,333. The 70,000 is then 75% of the total of $93,333.
Some Confusion Remains:
- It still appears that any employer retirement plan contribution paid on behalf of employees, if paid in the 56 day covered period, can be counted as payroll. For instance, this would apply to any payment related to 2019 or even the entire year of 2020.
- However, it appears that employer retirement contributions paid on behalf of self-employed individuals, and general partners are not allowed. We hope this oversight is corrected.
- How do we handle rents that are paid in advance? For instance if your covered period ends on June 30, and your July rent is paid in June, is such payment an allowed expense? I think it is (see page 2).
- Step 4 of the FTE Reduction Safe Harbor (page 9) says to use FTE as of June 30. This is not correct and is clarified both in the law and on page 8. A business must meet the FTE no later than June 30th however any pay period prior to June 30th is sufficient for step 4 of the safe harbor test.
New Mass Confusion
Previous rules had indicated a self-employed person’s forgiveness was going to be equal to the line 31 and 34 of their Schedule C or Schedule F, respectively. The instructions to line 9 (page 5) now indicate that any self-employed individual or general partner must actually pay themselves during the covered period, and the amount allowed is the lesser of the amount paid or 8/52 of the amount of self-employment income reported on their 2019 tax return.
Despite that a proprietor or general partner draw is merely a return of capital and not compensation, it is now CRITICAL that such persons actually receive drawings equal to the 2019 equivalent amounts.
After reviewing this information, and the application, please reach out to your Ketel Thorstenson, LLP professional with any questions or concerns.