The document summarizes key provisions from recent interim final rules and guidance related to the Paycheck Protection Program (PPP) loan forgiveness application process. It discusses eligibility for using the expedited PPP Loan Forgiveness Application Form EZ, the covered period and rehiring rules, eligible payroll and non-payroll costs, full-time equivalent employee (FTE) calculation and exceptions, required documentation, and certification requirements. Borrowers must retain documentation for 6 years to support their forgiveness application.

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Presentation: June 23, 2020

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 This content is for general informational purposes only, and should not be
used as a substitute for individualized tax advice with a qualified tax
advisor. This content represents the views of the authors only and does
not necessarily represent the views or professional advice of WithumSmith
+ Brown, PC.
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Frank Boutillette, CPA, CGMA
Partner, Team Leader
fboutillette@withum.com
(212) 829 3238
Daniel Mayo, JD, LLM
National Lead, Federal Tax Policy
dmayo@withum.com
(973) 532 8847
Chris DeMayo, CPA, MBA
Partner, Practice Leader:
Technology and Emerging Growth
Services
cdemayo@withum.com
(201) 400 8827
Matthew Walsh, CPA, MS
Team Leader
mwalsh@withum.com
(215) 932 4411

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 Interim Final Rule (IFR) (June 11)
 IFR (June 12)
 IFR (June 17)
 PPP Loan Forgiveness Application Form (and Instructions) (June 16)
 PPP Loan Forgiveness Application Form EZ (and Instructions) (June 16)
 IFR (June 23)
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 Enacted June 5, 2020
• Covered period (CP) – for loans issued before June 5th, the default CP is 24 weeks,
and borrowers can elect an 8-week CP
• For loans issued on or after June 5th, there is no 8-week option
• Rehire rule – for 8-week and 24-week CPs, the FTE and wage reductions can be
cured on or before December 31, 2020 (i.e., June 30th date no longer applies)
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 Maturity date – for loans issued on or after June 5th, they will have a 5-year
minimum maturity date
• For loans issued before June 5th, borrowers and lenders are permitted, but not required, to
extend the term from 2 years to 5 years
 Payment deferral (principal & interest) – extends deferral period to the date
the SBA remits the loan forgiveness amount to the lender
• If no forgiveness is sought, then payments will begin 10 months after the end of the covered
period
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 New FTE reduction safe harbors (in addition to 4 pre-existing exceptions), as modified in IFR
• Employee Availability – borrower can document in good faith an inability during the CP to rehire
individuals who were employees on February 15, 2020 and an inability to hire similarly-qualified
employees for unfilled positions on or before December 31, 2020
• Must notify state unemployment insurance office within 30 days of a rejected offer
• Business Activity – borrower can document in good faith an inability during the CP to return to the
same level of business before February 15, 2020 due to compliance with requirements or guidance
issued by the CDC, OSHA or HHS, during period from March 1st – December 31st, and relating to
maintenance of standards for sanitation, social distancing or worker/customer safety relating to
COVID-19
• Inability must be directly or indirectly related to federal rules (recognizing that state orders are based on federal
rules)
• Documentation must include copies of COVID-19 requirements or guidance for each business location and relevant
borrower financial records
• Example in IFR issued June 23, 2020 indicates that state shut-down order must reference the federal guidance
• This safe harbor will allow many borrowers to use the EZ loan forgiveness application
 60% / 40% rule – requires at least 60% of loan forgiveness amount to be spent on payroll costs
(effectively eliminates SBA’s 75% / 25% rule)
• New application has already employed this as a proportional requirement as opposed to a cliff
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 CP defaults to 24 weeks beginning on the day of the first loan disbursement
• If 24-week CP, then the rehire/wage restoration date is December 31, 2020
• Paid or incurred rule still applies to payroll and nonpayroll costs
 Borrowers who received loan before June 5th can elect an 8-week CP
• In this case, the rehire/wage restoration date is June 30, 2020
 Alternative Payroll Covered Period (APCP)
• For administrative convenience, borrowers with bi-weekly (or more frequent) payroll may elect to
calculate eligible payroll costs using 8-week or 24-week CP that begins on the 1st day of their first pay
period following the loan disbursement date
• Example:
• Loan received Monday, April 20 –> 1st day of pay period is Sunday, April 26
• 8-week APCP would begin Sunday, April 26 and end Saturday, June 20
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 Payroll costs
• For employees:
• Cash compensation (including bonus and hazard pay) –
• 8-week CP – subject to cap of $15,385 ($100k x 8/52)
• 24-week CP – subject to cap of $46,154 ($100k x 24/52)
• Non-cash compensation includes employer-paid group health care benefits, retirement benefits, and state and local employment taxes.
This is in addition to cash compensation
• For owner-employees/self-employed/general partners –
• 8-week CP – payroll compensation limited to lesser of 8 weeks of 2019 compensation or $15,385 ($100k x 8/52), in total
across all businesses
• 24-week CP – payroll compensation limited to lesser of 2.5 months of 2019 compensation or $20,833 ($100k x 2.5/12), in
total across all businesses
• C corporation owner-employees – capped at 2019 cash compensation and employer retirement and health insurance contributions
made on their behalf
• S corporation owner-employees – capped at 2019 cash compensation and employer retirement contributions, but not health insurance
because already included in cash compensation
• Schedule C filers – capped at owner compensation replacement amount, calculated based on 2019 net profit (no retirement or health
contributions b/c already included in self-employment income)
• General partners – capped at 2019 net earnings from self-employment (reduced by §179, unreimbursed partnership expenses, and
depletion from oil and gas properties), multiplied by 0.9235 (no retirement or health contributions b/c already included in self-
employment income)
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 Nonpayroll (i.e., overhead) costs
• Interest on mortgage obligations on real or personal property incurred before 2/15/2020
• Rent under a lease on real or personal property in force before 2/15/2020
• Utilities for which service began before 2/15/2020 (e.g., electric, gas, water, transportation (e.g., gas),
telephone, and internet)
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 Includes costs paid or incurred during the CP
• This includes costs –
• payroll incurred BEFORE the CP and paid DURING the CP and
• payroll incurred DURING the CP and paid AFTER the CP but ON OR BEFORE the next regular pay date
• Can include more than 8 or 24 weeks of pay –
• for non-owner employees
• for owner-employees/self-employed/general partners, subject to the appropriate cap (i.e., 2019
comp or specific dollar amount)
• For overhead costs, subject to the 40% limit on loan forgiveness amount
• Consider catch-up payment if any payment would not be paid until after the first
regular pay date after the CP
 Cannot exceed the principal amount of the loan plus accrued interest
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 3 Ways to eliminate an FTE reduction:
1. Rehire rule – EE reduction from 2/15/20 – 4/26/20 and FTE restored by 6/30/20 (8-week CP) or
12/31/20 (24-week CP)
2. 2 FTE safe harbors
• Employee Availability – borrower can document in good faith an inability during the CP to rehire
individuals who were employees on February 15, 2020 and an inability to hire similarly-qualified
employees for unfilled positions on or before December 31, 2020
• Business Activity – borrower can document in good faith an inability during the CP to return to
the same level of business before February 15, 2020 due to compliance with requirements or
guidance issued by the CDC, OSHA or HHS, during period from March 1st – December 31st, and
relating to maintenance of standards for sanitation, social distancing or worker/customer safety
relating to COVID-19
3. 4 FTE exceptions
• EE hours were reduced and EE refused an offer at same salary/wage to restore the reduction in hours
• EE fired for cause during the CP
• EE voluntarily resigned during the CP
• EE voluntarily requested and received reduced hours during the CP
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 Key points in the FTE reduction calculation:
• FTE calculation for the reference period is static – there are no adjustments to these
amounts regardless of the status of those employees after the reference period
• FTE reduction exceptions are added back to the amount of FTEs during the CP
• There are 4 FTE reduction exceptions – note what must occur during the CP
• For example – borrower utilizes a reference period of 1/1/20 – 2/29/20 and its CP is
4/15/20 – 6/9/20. On 3/31/20, an employee voluntarily resigns. Borrower would NOT
be able to eliminate this reduction because the voluntary resignation did not occur
during the CP
 Gross spending is the starting point in the loan forgiveness calculation, which is why most
borrowers will obtain 100% loan forgiveness with a 24-week CP
• Who will not get 100% loan forgiveness? Generally, borrowers with drastic reductions in
headcount or wages
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3 Ways to Eliminate the FTE Reduction Calculation:
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 Borrowers can submit loan forgiveness applications at any time, even before the end of the CP, if the
borrower has used all the loan proceeds for which forgiveness is sought, but must account for any wage
reductions in excess of 25% through the end of its CP
 Amount forgiven is tax-free, and there is no deduction for expenses relating to the amount forgiven (Notice
2020-32)
• Borrower should eliminate the deductions to extent of expected loan forgiveness on its 2020 tax
return even if a loan forgiveness decision has not been received by the return filing date
• Borrower will have greater taxable income because less expenses to deduct
• Legislation is being considered to restore the deductions
 SBA/Treasury announced they will publicly release information about borrowers whose loans equal or
exceed $150k
• Names, addresses, NAICS codes, zip codes, business type, demographic data, non-profit information,
jobs supported, and loan amounts in the following ranges: $150k – 350k; $350k – 1 million; $1
million – 2 million; $2 million – 5 million; and $5 million – 10 million
• These categories account for nearly 75% of loan dollars approved
• For loans under $150k, only aggregated loan data will be released
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 For loans not reviewed by the SBA –
• Lender has 60 days from receipt of completed application to issue a decision to SBA
• SBA then has 90 days to render a decision to the lender
 Decision can be either –
• Approval in whole or in part
• Denial
• (If directed by the SBA) – denial without prejudice pending SBA review of the loan
• Borrower can request lender reconsideration unless SBA determined borrower is ineligible for PPP loan
 SBA will issue further guidance for reviewed loans
 No payments of principal, interest and fees are due until the date the SBA issues decision
to lender and remits the loan forgiveness amount
• If borrower does not apply for loan forgiveness, then the deferral period ends 10 months after the
end of its CP
• If forgiveness is denied by the SBA, then the deferral period ends to the extent repayment is due
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 Payroll costs (cash payments and non-cash benefit payments)
• Bank account statements or third-party payroll service provider reports to show cash payments
• Tax forms (or equivalent third-party payroll service provider reports)
• Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941), and
• State quarterly business and individual employee wage reporting and unemployment insurance tax filings
reported, or that will be reported, to the relevant state
• Payment receipts, cancelled checks, or account statements documenting the amount of any
employer contributions to employee health insurance and retirement plans that were included in
the forgiveness amount
 FTE (average # of FTEs/month during borrower’s the reference period)
• Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941), and
• State quarterly business and individual employee wage reporting and unemployment insurance tax
filings reported, or that will be reported, to the relevant state
• May cover a time period longer than the specific time period
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 Nonpayroll costs (cash payments and non-cash benefit payments)
• Business mortgage interest payments
• Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the
CP, or
• Lender account statements from February 2020 and the months of the CP through one month after the
end of the CP verifying interest amounts and eligible payments
• Business rent or lease payments
• Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the CP,
or
• Lessor account statements from February 2020 and from the CP through one month after the end of the
CP verifying eligible payments
• Business utility payments
• Copy of invoices from February 2020 and those paid during the CP, and
• Receipts, cancelled checks, or account statements verifying those eligible payments
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 Documents each borrower must maintain but is not required to submit to its lender
• PPP Schedule A Worksheet
• Documentation supporting the information in the Worksheet, including salary/wage data of included and
excluded employees and FTE levels
• Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and
written requests by any employee for reductions in work schedule
 All records relating to the loan, including –
• Documentation submitted with the loan application
• Documentation supporting the borrower’s certifications as to the necessity of the loan request and its eligibility
for a loan
• Documentation necessary to support the borrower’s loan forgiveness application, and
• Documentation demonstrating the borrower’s material compliance with PPP requirements
 Borrower must retain all documentation in its files for 6 years after the date the loan is
forgiven or repaid in full
 Borrower must permit authorized representatives of SBA, including representatives of its
Office of Inspector General, to access such files upon request
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 There are four parts to the PPP Loan Forgiveness Application form:
i. PPP Loan Forgiveness Calculation Form
ii. PPP Schedule A
iii. PPP Schedule A Worksheet
iv. Optional PPP Borrower Demographic Information Form
Only parts (i) and (ii) are required to be submitted to the lender
 There are two parts to the PPP Loan Forgiveness Application 3508 EZ form:
i. PPP Loan Forgiveness Calculation
ii. Optional PPP Borrower Demographic Information Form
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 Borrowers must certify one of the following 3 options:
• Option 1: Borrower is a self-employed individual, independent contractor, or sole proprietor who had no
employees at the time it filed its PPP loan application and it did not include any employee salaries in the
computation of its loan amount when it filed its borrower application form.
• Option 2: Borrower meets the following two requirements:
• Borrower did not reduce the annual salary or hourly wages of any employee by more than 25% during the
covered period (“CP”) compared to the reference period (January 1, 2020 – March 31, 2020); AND
• The borrower did not reduce the number of employees or the average paid hours of employees between
January 1, 2020 and the end of the CP. (Ignore reductions that arose from an inability to rehire individuals
who were employees on February 15, 2020 if the borrower was unable to hire similarly qualified
employees for unfilled positions on or before December 31, 2020.) Also ignore reductions in an employee’s
hours that the borrower offered to restore and the employee refused.
 Option 3: Borrower meets the following two requirements:
• Borrower did not reduce the annual salary or hourly wages of any employee by more than 25% during the
CP compared to the reference period (January 1, 2020 – March 31, 2020); AND
• The borrower was unable to operate during the CP at the same level of business activity as before February
15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and
December 31, 2020 by HHS, CDC or OSHA, relating related to the maintenance of standards of sanitation,
social distancing, or any other work or customer safety requirement related to COVID-19.
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 Example:
• A PPP borrower is in the business of selling beauty products both online and at its
physical store. During the covered period, the local government where the
borrower’s store is located orders all non-essential businesses, including the
borrower’s business, to shut down their stores, based in part on COVID-19 guidance
issued by the CDC in March 2020.
• Because the borrower’s business activity during the covered period was reduced
compared to its activity before February 15, 2020 due to compliance with COVID
Requirements or Guidance, the borrower satisfies the Flexibility Act’s exemption
and will not have its forgiveness amount reduced because of a reduction in FTEs
during the covered period, if the borrower in good faith maintains records regarding
the reduction in business activity and the local government’s shutdown orders that
reference a COVID Requirement or Guidance as described above.
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 In addition to the standard documentation requirements, borrowers must maintain the
following documentation:
• Documentation supporting the certification, if applicable, that the Borrower did not reduce the
number of employees or the average paid hours of employees between 1/1/20 and the end of the
CP (other than any reductions that arose from an inability to rehire individuals who were employees
on 2/15/20, if the Borrower was unable to hire similarly qualified employees for unfilled positions on
or before 12/31/20). This documentation must include payroll records that separately list each
employee and show the amounts paid to each employee between 1/1/20 and the end of the CP.
• Documentation supporting the certification, if applicable, that the Borrower was unable to operate
between 2/15/20 and the end of the CP at the same level of business activity as before 2/15/20 due
to compliance with requirements established or guidance issued between 3/1/20 and 12/31/20 by
the HHS, CDC, or OSHA, related to the maintenance of standards of sanitation, social distancing, or
any other work or customer safety requirement related to COVID-19. This documentation must
include copies of the applicable requirements for each borrower location and relevant borrower
financial records.
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 Main Street Lending Program
• Operates through banks/lenders rather than through SBA
• 3 different lending facilities
• Main Street New Loan Facility (MSNLF)
• Main Street Priority Loan Facility (MSPLF)
• Main Street Expanded Loan Facility (MSELF)
• 2 different Nonprofit facilities (still accepting comments)
• Nonprofit Organization New Loan Facility (NONFL)
• Nonprofit Organization Expanded Loan Facility (NOELF)
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 Prioritized Paycheck Protection Program (P4)
• Bill would allow businesses with under 100 employees to apply for second PPP loan
• More info to come in the future
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