UPDATED June 4, 2020 – PPP Loan Recipients Receive Some Guidance on Forgiveness by Andrew Leonard, CPA

Posted on May 21, 2020 by Andrew Leonard

On May 15, the Small Business Administration (SBA) released the application form businesses must use to request forgiveness of Paycheck Protection Program (PPP) loans they applied for and received in the wake of COVID-19 crisis. Although the form helps to clarify some issues that businesses were hoping would help them calculate loan forgiveness, its 11 pages leave applicants with several other additional unanswered questions.

The PPP, introduced by the CARES Act, allocates nearly $670 billion to help eligible small businesses maintain their workforce and improve cash flow to cover payroll costs and certain other business expenses through an eight-week COVID-19 crisis period. When loan recipients meet certain requirements, such as using no less than 60 percent of loan proceeds for payroll expenses, they may qualify to have all or a portion of their loans forgiven. Any unforgiven amount must be repaid over five years at an interest rate of 1.0 percent.

Some of the issues clarified by the SBA’s Form 3508, Paycheck Protection Program Loan Forgiveness Application, include the following:

A borrower’s loan forgiveness amount will be reduced when the average weekly number of FTE employees during the covered period was less than during the borrower’s chosen reference period. However, the application notes that, for purposes of calculating loan forgiveness, borrowers do not need to consider reductions of FTE in which they 1) made a good-faith, written offer to rehire an employee during the covered period that the employee subsequently rejected; 2) fired any employees for cause; or 3) had any employees who voluntarily resigned or  requested and received a reduction of their work hours.

Moreover, an FTE safe harbor provides an exemption for certain borrowers from the loan forgiveness reduction when they meet the following conditions: 1) they reduced FTE employee levels in the period beginning Feb. 15, 2020, and ending April 26, 2020; and 2) they then restored their FTE employee levels by Dec. 31, 2020, to the same employee level during the pay period that included Feb. 15, 2020.

Some of the information contained in the newly introduced PPP loan forgiveness application and instructions may come as a surprise to borrowers as they attempt to calculate loan forgiveness. These include the following points:

There is no doubt that PPP loan recipients will need to jump through a few hoops and maintain meticulous records to qualify for maximum loan forgiveness. It is critical for business owners to work with their business advisors and tax accountants to ensure they meet all the program’s requirements and avoid regulatory scrutiny.

About the Author: Andrew Leonard, CPA, is a director with Berkowitz Pollack Brant’s International Tax Services practice, where he provides tax structuring, pre-immigration planning and a wide array of international tax and consulting services to international companies, entrepreneurs, families and foreign trusts. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or