By: Bruce J. Legawiec, CPA, Partner, Osborne Rincon CPAs
It has been well over 6 months since the Payroll Protection Program (PPP) was enacted. Many businesses have benefitted from the funds received through PPP, allowing them to retain employees, pay bills, and essentially keep the doors open for business. However, it is now time to understand the forgiveness application process and take appropriate action.
What’s important to remember is that the PPP is a loan that must be repaid – unless a business applies for forgiveness. A recipient of PPP funds can apply any time before the maturity date of the loan. However, keep in mind that if the application for forgiveness has not been submitted, then payments begin 10 months after the last day of the “covered period.”
As a reminder, the covered period is the duration of time allotted to spend PPP funds on “qualified expenses.” The covered period began on the date PPP funds were received and ends essentially 24 weeks after receipt of funds. Any business receiving funds before June 5, 2020, can elect an 8-week period.
The Small Business Administration has released three forms that can be used to apply for forgiveness. The borrower will need to make several “certifications” regarding the use of PPP funds and submit supporting documents to the lender.
Form 3508EZ can be used by a self-employed individual (essentially anyone who files Schedule C with their tax return), and had no employees, or did not include any employee salaries in the computation for the PPP loan application. Or, 3508EZ can also be used by a business that did not reduce annual salary or wages by more than 25% during the covered period; AND, did not reduce the number of employees between January 1, 2020, and end of the covered period; OR, was not able to operate during the covered period at the same level of business activity as before February 15, 2020, due to government mandated COVID-19 restrictions. Form 3508 – the most complicated form – is for everyone else.
It is suggested that anyone that received PPP funds contact their lender directly to review the application and determine specific information the lender will want to see.
An important closing comment – while it is clear that the forgiveness of the loan is not a taxable event – the income tax reporting treatment of the related expenses paid with PPP funds is yet to be determined. The IRS says the expenses are not deductible, yet many congressmen say the expenses are deductible.
For more information call Osborne Rincon CPAs at 760-777-9805.