Good News from IRS; PPP Borrower Focus Turns to Forgiveness

Good morning.  I hope you all had a very nice holiday weekend, and that those on the East coast came safely through the storms last night and this morning.  I woke up without power at home and so actually showered, got dressed in “work clothes” and am at the office.  (Don’t worry, legal services are “essential” here.)

One hopefully minor update from Treasury on Friday, but I wanted to lead with some good news.  The IRS has released a helpful FAQ on the deferral of employment taxes on Friday.  As you probably know, businesses that have a PPP forgiven are not eligible to use the employment tax deferral.  The IRS FAQ #3-4 helpfully provides that employers who obtain a PPP loan:

  • May still defer those employment taxes until “the lender issues a decision to forgive the [PPP] loan”, and
    The amount deferred through that forgiveness date “continues to be deferred”(!) until the applicable due dates (50% on each of Dec. 31, 2021and 2022).

Hat tip and thank you to Heather Alley, one of the leaders of the Federal Tax Group at DHG, for finding that Easter Egg.

Note that the IRS FAQ refer to the date when “the lender issues a decision to forgive”. Over the past few days, we have noticed a definite shift in the questions we are getting, as companies and investors have moved from questions around eligibility to affiliation to the actual application process and now onto forgiveness. While we are still awaiting further guidance from SBA on forgiveness, the IFR (from April 2) does seem to indicate that this will be largely a matter to be determined by the lender in reliance on certifications from the borrower.

“Can lenders rely on borrower documentation for loan forgiveness? Yes. The lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and attests that it has accurately verified the payments for eligible costs. The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.” (IFR, III.2(c))

Note that the same FOIA and FCA concernsnoted below will apply to borrower information submitted to request forgiveness.  We will follow up in more detail when SBA releases the additional forgiveness guidance.  In the meantime, we again recommend that borrowers strongly consider using a separate account for PPP loan proceeds to precisely track uses of such proceeds.

On a possibly related point, the Treasury PPP FAQ were updated on Friday to add #21, which primarily confirms that lenders do not need a separate loan authorization from SBA.  However, FAQ #21 also adds that PPP lenders can add pretty much whatever they want into their PPP promissory notes, “including re amortization and disclosure”, as long as those provisions are not inconsistent with the lender application form, the [CARES Act], “the [IFR] and guidance.”  It’s not entirely clear why Treasury included that language in response to question “Do lenders need a separate SBA Authorization document to issue PPP loans?”  At the risk of stating the obvious,  remember to read your promissory note before you sign it.  We know everyone and everything is moving quickly and that the loan documents may not be open for negotiation, but these are still legally binding documents, so Borrowers should be sure to read their promissory notes and other PPP loan documentation carefully to at least understand their obligations and the lender’s rights.  Especially in light of this FAQ response, care should be taken not only with respect the loan terms, but also as to any provisions that allow the lender to use or disclose data submitted by the borrower in its application and its forgiveness calculations.

Thank you and have a great week.  Please let me or anyone or team know if you have specific questions.  Thank you.

(Just a reminder that this is informational only. None of this is legal advice and does not constitute us helping or advising anyone in preparing a PPP application or negotiating loan documents.)