Paycheck Protection Program: the latest updates on forgiveness, change in ownership and audits, and what’s next October 29, 2020
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Presenters Plan for our time together Mac Bernstein Partner, Federal Law and Policy 1.Welcome T: 202 799 4302 mac.bernstein@dlapiper.com Federal stimulus update Michael “Mick” Helmicki 2. Recent PPP updates Client Development Executive 1 T +1 703 773 4142 Clarifications and supplemental guidance michael.helmicki@us.dlapiper.com Tami Howie 3. Forgiveness Partner, Corporate T +1 202 799 4555 Process and audits tami.howie@us.dlapiper.com 4. Change of ownership SBA guidance: lenders and borrowers 5. Closing What’s next and Q&A www.dlapiper.com 3
Federal stimulus update PPP: by the numbers • The PPP closed to new loans on August 8, 2020 with $134 billion of congressionally approved funds remaining unspent • Paycheck Protection Program (PPP) borrower focus shifts to forgiveness; on $659 billion Funds authorized June 16, Form 3508 (v2) and Form 3508EZ were released • The Small Business Administration (SBA) and Treasury announce that recipients of loans of $2 million or more should expect an audit if they apply for forgiveness; safe harbor for loans of < $2 million protects a small borrower from a PPP audit based on its good faith certification $525 billion Net dollars loaned • On August 17, SBA issues 23rd IFR that details appeals process for businesses that disagree with SBA’s PPP loan forgiveness decision • New guidance issued by the SBA on October 23 describes the procedures required for changes of ownership of an entity that has received PPP funds • Progress on a new stimulus bill, including a potential PPP2, remains slow; Number of PPP loans: 5,212,128 Democrats proposed a $3 trillion stimulus (the HEROES Act) which was Source: Small Business Administration countered by the Republicans’ $1.1 trillion proposal (the HEALS Act) and Department of Treasury statistics www.dlapiper.com 4
1. Welcome Federal stimulus update 2. Recent PPP updates 2 Clarifications and supplemental guidance 3. Forgiveness Process and audits 4. Change of Ownership SBA guidance: lenders and borrowers 5. Closing What’s next and Q&A www.dlapiper.com 5
Clarifications and supplemental guidance Amounts incurred at the end of the covered period and paid after end of covered period are included • Amounts incurred before start of the covered period and paid during the covered period are included • No acceleration of costs into covered period Forgivable • Cash compensation does include bonuses and commissions • payroll costs Employer paid health insurance does include dental and vision • Business owner limitations and de minimis ownership threshold • Amounts incurred at the end of the covered period and paid after end of covered period are included • Forgivable Amounts incurred before start of the covered period and paid during the covered period are included • No acceleration of costs into covered period • non-payroll Related party leases and limitations • costs Transportation costs • www.dlapiper.com 6
Clarifications and supplemental guidance Salary/wage • Based only on hourly rate or base salary reduction Extrapolated through 24 weeks • penalty Loan forgiveness otherwise available may be reduced based on the quotient of x/y • x = average number of non-owner FTEs per week during the covered period • FTE reduction y = average number of non-owner FTEs per week during either: • the period beginning 2/15/19 and ending 6/30/19 OR penalty the period beginning 1/1/20 and ending 2/29/20 Safe harbors and exceptions apply • www.dlapiper.com 7
FTE calculation: safe harbors and exceptions No reduction to the number of employees or the average hours of paid employees between 1/1/20 • and the end of the covered period • Unable to operate between 2/15/20 and the end of the covered period at the same level of business activity as before 2/15/20 due to compliance with… Safe harbors Borrower reduced FTE levels in the period beginning 2/15/20 and ending 4/26/20; AND b orrower • then restored FTE levels by not later than 12/31/20 to its FTE employee levels in the borrower’s pay period that included 2/15/20 Positions for which the borrower made a good faith written offer to rehire an individual who was an • employee on 2/15/20 and the borrower was unable to hire similarly qualified employees for unfilled positions on or before 12/31/20 • Positions for which the borrower made a good-faith written offer to restore any reduction in hours, at Exceptions the same salary or wages, during the covered period and the employee rejected the offer Any employees who during the covered period were fired for cause; voluntarily resigned; or • voluntarily requested and received a reduction of their hours www.dlapiper.com 8
Special rules for business owners Tax entity Cap on business owner cash Cap on business owner cash Eligible business owner non-cash type compensation: 8-week covered period compensation: 24-week covered period compensation C Corporation 1 Lessor of $15,385 or 8-week equivalent Lessor of $20,833 or 2.5 month ER-paid health ins., ER-paid ret. benefits of the 2019 amount equivalent of the 2019 amount capped at 8-weeks or 2.5 month equivalent of 2019 amount, ER-paid state/local payroll taxes S Corporation 1 Lessor of $15,385 or 8-week equivalent Lessor of $20,833 or 2.5 month ER-paid ret. benefits capped at 8-weeks of the 2019 amount equivalent of the 2019 amount or 2.5 month equivalent of 2019 amount, ER-paid state/local payroll taxes 2 Partnership Lessor of $15,385 or 8-week equivalent Lessor of $20,833 or 2.5 month None (included in self-employment of the 2019 amount 3 equivalent of the 2019 amount 3 earnings) 1 These rules do not apply to C Corporation or S Corporation shareholders that hold a stake of less than 5% 2 Employer paid health insurance is excluded for this purpose since it is reflected in W-2. Employer paid health insurance for family members of >=2% S Corporation shareholder should also be excluded 3 For this purpose , the 2019 amount represents self-employment earnings (net of section 179 expense, unreimbursed partnership expenses and oil/gas depletion) multiplied by 0.9235 www.dlapiper.com 9
Putting it all together Covered period (first loan disbursement) Costs eligible for forgiveness Thresholds OR Payroll 8 weeks At least Health benefits Sooner of 24 weeks or 12/31/20 60% Retirement benefits State and local payroll taxes Covered rent obligations No more than 40% Covered mortgage obligations Covered utility obligations Reductions in forgiveness 1. Must meet the 60% threshold on eligible payroll expenses for forgiveness Covered period Reference period Safe harbors and 2. Level of reduction in the average number of FTE employees exceptions based on inability to 3. Reduction in an employee’s compensation by more than hire/rehire; 25% (annualized salary of $100K or less) return to same level of business activity www.dlapiper.com 10
1. Welcome Federal stimulus update 2. Recent PPP updates 3 Clarifications and supplemental guidance 3. Forgiveness Process and audits 4. Change of ownership SBA guidance: lenders and borrowers 5. Closing What’s next and Q&A www.dlapiper.com 11
Loan forgiveness milestones and timelines 24-week covered period 90 days 60 days to track use of loan proceeds for SBA to review borrower’s for lender to review Note: Borrowers who received PPP loan forgiveness application borrower’s loan forgiveness loans before June 5, 2020 can elect and supporting application and supporting to use the original 8-week covered documentation documentation period as an alternative Borrower receives Borrower submits complete Lender provides SBA to remit Borrower’s first PPP loan PPP loan forgiveness borrower’s loan forgiveness forgiveness amount to date of repayment (disbursement date) application through lender application to the SBA lender (if applicable) portal Note: Borrowers can complete a PPP Lender to notify borrower of SBA loan forgiveness application before remittance of loan forgiveness amount the end of the covered period until up to 10 months following the end of (or SBA determination that no amount the covered period of loan is eligible for forgiveness) and, if applicable, borrower’s first date of repayment www.dlapiper.com 12
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