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PPP Forgiveness - Urgent Update

The Senate voted on June 3, 2020 to pass the Paycheck Protection Program Flexibility Act (H.R. 7010), which now moves to President Trump’s desk and will presumably become law.  Prior to the passage of the PPP Flexibility Act, over $511 billion has been loaned to tens of thousands of struggling American businesses under the Paycheck Protection Program.  These loans require no collateral, are non-recourse, and bear interest at only 1%.   Prior to the passage of the PPP Flexibility Act, businesses have been required to use PPP funds on the defined expenditures during the eight week period following the date that the PPP loan proceeds were placed in the borrower’s account in order to have the loan be forgiven. The PPP Flexibility Act will extend the eight week period and allow for an increased number of businesses to qualify for greater loan forgiveness by using the funds in a way that will better assure the survival of the business.  The downside is that the PPP Flexibility Act also imposes additional requirements on businesses through December 31, 2020.   Kudos to Congress on passing a bipartisan, logical bill that will allow a great many borrowers to survive and spend moneys that may allow for forgiveness in a manner that is best for employees, struggling businesses, and our economy.  There will be a cost, however.  The SBA will receive far less in repayments on PPP loans, so the federal deficit will be hundreds of billions of dollars larger, contributing to pressure to raise income taxes and reduce the federal estate tax exemption after the elections in order to have semblance of fiscal balance for our nation’s future


Dear Clients and Colleagues:

For those who have applied for and received their PPP (Payroll Protection Program) loan funds, you must now face the daunting task of interpreting the complex rules to calculate the loan forgiveness. The SBA on Friday, May 15 issued long-awaited guidance including a copy of the application and documentation that will be required to apply for forgiveness. There do remain numerous questions that we hope will be answered in additional guidance, however we will make every effort to advise you based on what we consider to be proper interpretations of the current rules.

Please note the following lists are NOT all inclusive.


  • PPP funds are loans and are NOT automatically forgiven.  You must proactively apply for forgiveness (see ‘Forgiveness Application’ attached) within a specified time period dictated by your lender and forgiveness is allowed only to the extent of allowable expenditures.
  • The forgiveness period generally begins on the day you received your loan proceeds, and runs for 8 weeks.  It is critical that you are aware of your specific forgiveness period(s) .
  • Forgiveness may be limited based on reductions in employee count and/or wages paid to each employee (subject to new exceptions below).
  • There are substantial documentation requirements, including historical and current payroll records, copy of lease agreements, etc to apply for forgiveness.  We advise everyone to start the process immediately (see ‘Documentation Requirements’ attached).
  • For California businesses, the FTB has announced that PPP loan forgiveness will be taxable income for state purposes.
  • PPP funding is still available – if you haven’t previously applied but are an eligible business, you can STILL apply for and receive funding.


  • Option to calculate payroll costs eligible for loan forgiveness using an "Alternative Payroll Covered Period" if you use a weekly or bi-weekly payroll cycle.
  • Ability to include eligible costs that are incurred but not paid during the forgiveness period, if paid on or before the next regular payroll date (for payroll costs) or billing date (for non-payroll costs).
  • Favorable clarification regarding the requirement that only 25% of PPP forgiveness is allowed for non-payroll costs (limited to 1/3 of payroll cost forgiveness).
  • Clarification that rent payments can include both real and personal property (machinery/equipment and possibly auto leases).
  • New exceptions that avoid the requirement to reduce forgiveness based on a reduction in employee numbers under certain conditions, or when employees are re-hired before June 30, 2020.


  • Retirement contributions – It is still unknown what amounts of retirement plan contributions are eligible for forgiveness as there is conflicting guidance.  There is no certainty whether you can fund your 2019 contribution in arrears, your 2020 contribution in advance, or if proration for only 8 weeks is required.  As of now, you should only consider funding lump sum retirement contributions after all other eligible costs are paid in the forgiveness period.
  • Prepaid rent may be eligible for forgiveness.
  • Definitions of eligible utilities.
  • Tax deductibility – The IRS announced that deductions will NOT be allowed to the extent payroll and other costs have been paid with forgiven PPP funds.  This seems contrary to congressional intent in the CARES Act and influential parties are hotly contesting this unfavorable ruling.  Congress may also take additional action to reinstate these tax deductions. 
  • Other Congressional action may further extend the forgiveness period beyond 8 weeks.

We would encourage you to estimate this now based on your expectations of costs during the forgiveness period, so that if there is any shortfall in your forgiveness amount you may still have time to take action to maximize forgiveness.  .

We know this process is intimidating but we are here to help based on your specific circumstances.