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Tax Monitor

A Practical And Expansive Approach To Forgiveness

May 18, 2020

By: Mark A. Mangano and Robert G. Tweel

The Small Business Administration (SBA) issued the "Paycheck Protection Program Loan Forgiveness Application” and instructions (App). Later today, Bob Tweel will be publishing an article summarizing the App’s features. This post highlights a few significant procedural features of the App and some apparent efforts to make the forgiveness calculations easier and more expansive.

Procedural features

The App reduces the complexity of applying for forgiveness by providing:

  • Step-by-step instructions on how to perform the calculations required to confirm eligibility for forgiveness;
  • An option to use an “alternative payroll covered period” for calculating covered expenses for the eight-week period that aligns with the borrower’s standard payroll cycles;
  • Greater instruction on the nature of documents borrowers should expect to provide to prove their eligibility for forgiveness; and
  • A process for calculating FTE reduction exemptions.

Expansive interpretations of forgiveness

The App introduces features to the forgiveness calculations that seem to show an intention to create an expansive definition of forgivable expenses. The three most significant include:

  • Total eligible payroll costs include both payroll costs paid and payroll costs incurred during the covered period (or “alternative payroll covered period” if selected by the borrower).  This definition may be construed to potentially expand the eligible payroll costs beyond those incurred in the eight-week period.  This interpretation would help increase the likelihood of full forgiveness for borrowers that maintained wage levels. We will look for further guidance on this issue;
  • The FTE Reduction Safe Harbor is expanded to ensure that it applies to both borrowers that reduced their workforce during the period from February 15, 2020 through April 26, 2020 but restored the number of FTEs by June 30, 2020, as provided in the CARES act, and borrowers that did not reduce the number of FTEs between January 1, 2020 and the end of the Covered Period; and
  • An exemption from the FTE Reduction calculation for employees who declined good-faith, written offers to return to work and were not replaced by the borrower.

More to come

The App is a great stride forward in bringing clarity to the process of determining forgiveness under the Paycheck Protection Program. Many questions remain unaddressed. The SBA has promised to publish further guidance for both lenders and borrowers processing forgiveness requests.


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