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Are You Ready to Apply for PPP Loan Forgiveness?

Ever since the CARES Act was signed into law on March 26, 2020, followed by the enhancements provided by the Paycheck Protection Flexibility Act signed into law on June 5, 2020, there have been a flood of FAQs and interim final rules that clarified the provisions of the law. 

While the news has been quieter lately, that does not necessarily mean that this is the time to submit your application for forgiveness.  If you feel confident that your loan was only used for qualified expenses, the application is now available to officially request forgiveness of your loan.  

However, many loan recipients have determined there are still many unanswered questions that need to be clarified to ensure maximum forgiveness and proper tax planning.  For companies opting to wait for further clarification of the provisions of the law, now would be a good time to gather supporting documentation and other information for the loan forgiveness process.

There are some things to consider prior to submitting your application:

  • The calculation in the application does not clarify the limit to your reduction in forgiveness for a reduction in full time employees (FTE).  It appears as if you may be able to incur enough expenses during the covered period that even a 50% FTE reduction could allow for full loan forgiveness.  The application allows for the lesser of the calculated amounts or the amount of the PPP loan to flow through as the forgiveness amount.  
  • Tax deductibility of costs associated with a forgiven loan has not been clarified.   While the CARES Act (P.L. 116-136) provided for tax-exempt treatment of the amount of loans forgiven, it did not address whether deductions for expenses associated with the loan forgiveness would still be allowed. 
  • The availability of the FTE reduction safe harbor (for example, allowing for a reduction in headcount due to operating restrictions caused by the pandemic) could be affected after clarification.  It is possible that state mandated laws or rules regarding the restrictions of U.S. Department of Health and Human Services, Occupational Safety and Health Administration, or Center for Disease Control and Prevention are not reflected in the federal rules for the safe harbor FTE requirements.  Additional guidance may be required to determine if the safe harbor rules for state mandates will qualify for forgiveness. 

The Paycheck Protection Program has changed dramatically since the CARES act was signed into law and will likely continue to change in the future.  Only time will tell how the final provisions will be written.  Having the most up-to-date information is crucial when making decisions, so having patience in applying for the loan forgiveness may be your best course of action.  It is important to develop a plan now as the due date for your loan forgiveness application is approaching.

As new information continues to be released, please check with CDH for the most up to date guidelines, CDH is here to help you navigate these uncertain times.