PPP Flexibility Act - O'Connor & Drew, P.C. · • Additional interim final rules (regulations) • Legislation • Senators already drafting bill to fix the 60% payroll cost “cliff”

PPP Flexibility Act:Discussion of Provisions

June 5, 2020Presented by:

Ryan J. McDonellTax Manager, CPA

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Disclaimer

This presentation is not intended to be tax or legal advice. This presentation is for informational purposes only. Businesses are not all

the same and have unique situations. Please contact your tax professional and/or attorney before making any decisions.

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Loan Maturity Extended

• Old provision:• Loan amount not forgiven subject to repayment over 2-year term

• New provision:• Loan amount not forgiven subject to repayment over 5-year term• Applies to any loan made after the PPP Flexibility Act passes• Preexisting loans may be modified to adopt the 5-year repayment term upon

mutual agreement between lender and borrower

• Questions:• Should borrowers be proactive in requesting change to loan terms?• Will lenders push-back against the 5-year term for existing loans?

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Covered Period Extended

• Old provision:• 8-week covered period

• New provision:• 24-week covered period• Borrower may elect to use the original 8-week period

• Questions:• Will the alternative covered period be adapted for the 24-week period?• Is the $100k per employee “cash compensation” limit still $15,385 per EE

based on 8/52 weeks or will this amount increase to $46,154 per EE based on 24/52 weeks?

• Similarly, will employee-owner and self-employed calculations be adjusted to 24/52 weeks?

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Safe Harbor Date Extended

• Old provision:• Borrower not subject to FTE forgiveness reduction or salary/wage forgiveness

reduction if 2/15/20 levels are restored by 6/30/20

• New provision:• Borrower not subject to FTE forgiveness reduction or salary/wage forgiveness

reduction if 2/15/20 levels are restored by 12/31/20

• Question:• Will safe harbor be based on a “not later than” 12/31/20 standard, or based

on an “as of” 12/31/20 standard?• Forgiveness regulations use “not later than” language• Forgiveness application uses “as of” language

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FTE Reduction Exemption Expanded

• Loan forgiveness is determined without regard to reduction in FTE count if borrower documents:

• An inability to rehire individuals who were employees of the borrower on 2/15/20 and an inability to hire similarly qualified employees for unfilled positions on or before 12/31/20, or

• An inability to return to same level of business activity as such borrower was operating before 2/15/20 due to compliance with requirements established or guidance issued by HHS, CDC, or OSHA during the period of 3/1/20 – 12/31/20 related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19

• Question:• How will the borrower be required to substantiate these exceptions?

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Limitation on Forgiveness Percentage Adjusted

• Old provision:• No more than 25% of total forgivable expenses may be for non-payroll costs

including mortgage interest, rent, and utilities• Created a 75% payroll cost / 25% non-payroll cost split for forgiveness• No requirement to spend at least 75% of loan amount on payroll costs

• New provision:• At least 60% of the loan amount must be spent on payroll costs to receive loan

forgiveness• Creates a 60% payroll cost / 40% non-payroll cost split for forgiveness• Appears to create requirement to spend at least 60% of loan amount on payroll costs

• Question:• Will Congress pass a technical correction to remove the “cliff” effect of the 60%

requirement?

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Loan Repayment Deferral Period Adjusted

• Old provision:• Amounts not forgiven are subject to repayment after a 6-month deferral

period

• New provision:• Amounts not forgiven subject to repayment either when:

• Forgiveness amount is remitted to the lender, or• 10 months after the end of the borrower’s covered period

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Employer Payroll Tax Deferral Expanded

• Background:• Under Section 2302 of the CARES Act, an employer may defer paying

employer-share of Social Security taxes until 50% by 12/31/21 and the remaining 50% by 12/31/22

• Old provision:• Deferral of payment of ER share of SS taxes allowed until forgiveness received

• New provision:• Deferral of payment of ER share of SS taxes available for full 2020 year,

unaffected by loan forgiveness

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Forgiveness Guidance (Released May 22nd)

• The salary/wage reduction only applies to a decline in the rate of pay of the employee.

• If an employee’s hours decrease but the hourly rate of pay remains the same, there is no salary/wage forgiveness reduction. The borrower may still be subject to a reduction based on decrease of FTE count.

• Following payroll costs are eligible for forgiveness• Salary, wages, or commissions to furloughed employees • Bonuses• Hazard pay

• In order to receive the FTE exception for providing an employee a written offer which the employee declines, the borrower must inform the applicable state unemployment insurance office within 30-days of the employee’s rejection.

• SBA to release additional information on this process.

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More to Come?

• Guidance• Revised forgiveness application• Rumored 30-FAQ guidance• Additional interim final rules (regulations)

• Legislation• Senators already drafting bill to fix the 60% payroll cost “cliff” and to allow PPP funds

to be used on personal protective equipment (PPE)• S. 3612 bill to make expenses paid with PPP funds deductible continues to gain

cosponsors• Automatic forgiveness

• Bank trade organizations requesting automatic forgiveness for PPP loans of less than $150,000

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Resources• PPP Flexibility Act• Treasury PPP Guidance Page• www.ocd.com/covid-19 (recorded presentation, slide deck, previous presentations/resources)

Contact Us With Your Questions

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Mark V. DowManaging Principal,

CPA, [email protected]

Kevin J. CarnesPrincipal, CPA, [email protected]

Lauren A. CarnesTax Principal, [email protected]

Ryan J. McDonellTax Manager, CPA

[email protected]