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Paycheck Protection Program Flexibility Act of 2020 Signed into Law by the President

COVID-19 Relief
June 5, 2020
Paul Buchman, Esq
The President signed in to law the PPP Flexibility Act of 2020 H.R. 7010 (“FA”), which provides several amendments to the current PPP under the CARES Act. These measures were earlier approved by the House of Representatives and the Senate . The amendments are as follows:
  • The 75% Payroll Threshold – Currently the law requires loan recipients to spend at least 75% of the loan on payroll costs to qualify for loan forgiveness. The FA will reduce this level to 60% and allow borrowers to use additional PPP funds on nonpayroll costs such as rent, utilities and mortgage interest.
  • Extension of Covered Period to Spend PPP - Instead of the 8-week period borrowers will have a 24-week period or until the end of 2020 (whichever comes first) to spend PPP funds and qualify for loan forgiveness. The spending period begins after the PPP loan is approved. This is intended to ensure that borrowers have sufficient time to appropriately spend PPP funds.
  • Time Period for Loan Forgiveness – The FA extends the loan repayment period from 2 years to 5 years.
  • Extension of Employee Rehire Period – The FA revises the safe harbor period for rehires from June 30, 2020 to December 31, 2020. This extension of the rehire period provides additional time to borrowers to rehire full-time equivalent employees (“FTEs”).
  • Payroll Taxes – This provision of the FA allows borrowers who applied for PPP forgiveness to delay the payment of payroll taxes.
  • Exemption from Loan Forgiveness Reduction – The amount of the loan to be forgiven will not be reduced by a reduction in the number of FTEs if the employer made a good faith effort to rehire employees and was unable to rehire qualified new employees to bring the FTE count back to pre-COVID 19 levels. This exception will also apply to employers that were unable to rehire employees based on government restrictions related to standards of social distancing, sanitation or safety.
  • Unanswered Question Regarding Taxation of PPP – While forgiven PPP loans are  not subject to tax as debt forgiveness, the IRS ruled that expenses paid with PPP loan proceeds are non-deductible and thus subject to taxation. The FA did not address this issue. While many believe the intent of Congress was that loan forgiveness would be non-taxable, the legislation did not explicitly state this. Without a legislative change, the related expenses paid with PPP loans will not be deductible.

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