On Friday, May 15, the SBA issued the Loan Forgiveness Application allowing borrowers to claim forgiveness of their Paycheck Protection Program ("PPP") loans.  The Application provides detailed instructions for borrowers to calculate PPP loan forgiveness.  Here are 5 key takeaways borrowers need to know now:
 
1. A borrower must request loan forgiveness by filing SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application. The application has four parts: (1) the PPP Loan Forgiveness Calculation Form; (2) PPP Schedule A; (3) the PPP Schedule A Worksheet; and (4) an (optional) PPP Borrower Demographic Information Form. A borrower must submit items (1) and (2) to its lender.

2. A borrower who, together with its with affiliates, received aggregate PPP funds over $2 million must check a box. This provision flags PPP loans that the Treasury Department will audit. However, the form's instructions specifically limit the obligation to loans aggregated with affiliates "to the extent required under SBA's interim final rule on affiliates issued April 15, 2020." A borrower who believes it meets this obligation should consult with counsel with respect to the affiliation rules.

3. A borrower will need to submit documents to support payroll, FTE, and non-payroll calculations. A list of the documents can be found on page 10 of the Application.

4. The Application and instructions provide several highly-technical new issues to consider when calculating the borrower's loan forgiveness, including: an option to calculate payroll costs using an "alternative payroll covered period" that aligns with borrower's regular payroll cycles; some flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan; implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30; and the addition of a new exemption from the loan forgiveness reduction for a borrower who has made a good-faith, written offer to rehire workers that was declined.

5. Last, the SBA extended the safe-harbor deadline for returning PPP loans yesterday. Early payment will exempt borrowers from questions whether they certified a "need" for the loans "in good faith." The extension was announced in new item 47 of the SBA's Frequently Asked Questions list. A borrower returning PPP loan funds by the deadline should become eligible for the Employee Retention Tax Credit.

We strongly advise that you consult with your accountants and tax advisers as you deal with any notices under the PPP process.

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