Key points about applying for PPP loan forgiveness

Although lenders and CPAs alike are waiting for important rules to be clarified, here’s what we do know

The loan forgiveness process for the Paycheck Protection Program is drawing plenty of questions these days, not only from those who received a loan from the federal program but from lenders and CPAs too.

The PPP, as you’ll recall, was rolled out last March as part of the Coronavirus Aid, Relief and Economic Security Act to help small businesses survive the pandemic’s economic downturn. Between April and early August, the PPP provided $525 billion in government-backed loans to 5.2 million borrowers.

On Aug. 8, the Small Business Administration stopped accepting PPP applications from participating lenders. It’s now offering PPP loan forgiveness applications to submit to your lender.

At this point, however, uncertainty surrounds key areas of PPP loan forgiveness, especially about the tax treatment of your expenses and what amount of your loan will be excused from repayment. Lenders—who loaned borrowers the PPP money—are awaiting final word from the SBA about how and when they’ll be repaid. CPAs are eager to address key tax questions. Reports of PPP fraud and abuse are adding to the complications and delay in SBA’s release of final guidelines.

In the meantime, here are some key points to keep in mind.

When to apply

Don’t be in a hurry to file for loan forgiveness. As a PPP borrower, you may be ready to put the program behind you. But there’s plenty of time. Borrowers can submit a forgiveness application up to 10 months after the covered period ends, which is 24 weeks after you receive loan proceeds. However, for many loans that originated before June 5, payments are set to begin after six months. There has caused significant confusion. Lenders are seeking clarity from SBA on what changes need to be made to their original notes.

How to apply

• Use the 3508EZ loan forgiveness application form [https://www.sba.gov/document/sba-form-paycheck-protection-program-ez-loan-forgiveness-application] if you’re self-employed or an independent contractor; had no employees at the time you applied for the PPP loan; and did not include employee salaries when you calculated your PPP loan amount. If those don’t apply to you, use the normal form [https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf].

• While you must submit the application for forgiveness within 10 months of the covered period, the key is when the bank receives it. The SBA and the bank can take longer than 10 months to process the application.

What to include in your application

Among the details you must document:

• Payroll costs incurred during and paid after the end of your covered period. Payment of the costs must be made on or before on your next regular payroll;

• All payroll costs incurred before and during your covered period;

• Employee gross pay before any deductions;

• The employer portion of health costs.

Other items to consider

• Non-payroll costs, such as qualifying utilities and rents;

• IRS guidance remains unclear regarding deductibility of expenses for tax purposes. K·Coe advisors are closely assessing the rules and monitoring for potential changes, and we fully expect more SBA guidance to be released. Because of the complexity and uncertainty of PPP forgiveness, consult with your tax advisor to make sure you’re staying informed, following the latest guidelines and taking all the right steps.

Editor’s note: Maxson Irsik, a certified public accountant, advises owners of professionally managed agribusinesses and family-owned ranches on ways to achieve their goals. Whether an owner’s goal is to expand and grow the business, discover and leverage core competencies, or protect the current owners’ legacy through careful structuring and estate planning, Max applies his experience working on and running his own family’s farm to find innovative ways to make it