2020-06 - PPP Forgiveness - Part Deux-Final · 2020-06-10 · Microsoft PowerPoint - 2020-06 - PPP...

6/9/2020

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1PPP Forgiveness: Is it Forgivable? Part DeuxBill Walter, DHG | David Shafer and Cy Alba, PilieroMazza

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@DHG_GovCon

Please note that slides will be distributed after the webinar.

Your Presenters

Bill Walter Managing Director, [email protected]

David [email protected]

Cy AlbaPartner, [email protected]

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Agenda for Part Deux

• Section 3610 and PPP forgiveness;

• PPP Flexibility Act;

• SBA Form 3508 – Loan Forgiveness Application;

• SBA IFRs – Guidance on forgiveness

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Legal Disclaimer:The information in this presentation is based upon relevant legal authority as of aspecific point in time. These authorities are subject to change or modificationretroactively and/or prospectively and such changes may affect the validity orcorrectness of this information. Additionally, the information contained within thepresentation may be tailored to a specific audience and therefore may not beapplicable to all people or all situations. This presentation does not constitute taxadvice by DHG.

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Polling Question

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3610 Guidance &

PPP Forgiveness

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CARES Act § 3610 – Federal Contractor Authority

• § 3610 provides for reimbursement for standby time due to COVID-19:+ Reimbursement is discretionary – not mandatory;+ Based on availability of funds;+ The contract, or other agreement, may be modified to provide for reimbursement;+ Reimbursement is based on “the minimum applicable contract billing rates not to

exceed an average of 40 hours per week for paid leave, including sick leave”;+ Reimbursed must be to retain employees or subcontractors in a “ready state”; + Reimbursement must be due to an employee’s inability to perform work on a site

approved by the Federal Government due to facility closures or restrictions and telework is not acceptable due to the nature of the job duties;

+ January 31, 2020 through September 30, 2020; and + Maximum reimbursement SHALL be reduced by the amount of credit a contractor is

allowed under division G of the FFCRA and the CARES Act, which includes the PPP.

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DoD Guidance on 3610

• April 8, 2020 - DFARS class deviation 2020-O0013 on implementing Section 3610 creates DFARS 231.205-79 to appropriately balance flexibilities and limitations. This clause states:

“Costs made allowable by this section are reduced by the amount the contractor is eligible to receive under any other Federal payment, allowance, or tax or other credit allowed by law that is specifically identifiable with the public health emergency declared on January 31, 2020, for COVID–19, such as the tax credit allowed by division G of Public Law 116–127.

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DoD Class Deviation – CARES Act § 3610

• DoD’s Class Deviation Memorandum 2020-O0013 states:

“Some contractors may receive compensation from other provisions of the CARES Act, or other COVID-19 relief scenarios, including tax credits, and contracting officers must avoid duplication of payments. For example, the Paycheck Protection Program (PPP) established pursuant to sections 1102 and 1106 of the CARES Act may provide, in some cases, a direct means for a small business to obtain relief. A small business contractor that is sheltering-inplaceand unable to telework could use the PPP to pay its employees and then have the PPP loan forgiven, pursuant to the criteria established in the interim rule published by the Small Business Administration. In such a case, the small business should not seek reimbursement for the payment from DoD using the provisions of section 3610.”

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DoD FAQ # 23 - UPDATE

Q23: Please confirm that neither the FAR Credits provision, FAR 31.201-5, the credit provision in the Allowable Cost and Payment Clause, FAR 52.216- 7(h)(2), nor any other FAR or DFARS provision imposes an obligation on a contractor to credit any amount of a Payroll Protection Program (PPP) loan that is forgiven to any flexibly priced government contract or subcontract. We consider a contractor that has received a PPP loan will use the loan proceeds as it would any other funds in its corporate treasury to pay costs of doing business.

A23: We disagree, any PPP loan that has been forgiven necessarily can be treated as though it belongs to the company to use as it pleases. FAR 31.201-1, Composition of Total Cost, states that total cost is the sum of the direct and indirect costs allocable to the contract less any allocable credits. Accordingly, to the extent that PPP credits are allocable to costs allowed under a contract, the Government should receive a credit or a reduction in billing for any PPP loans or loan payments that are forgiven. Furthermore, any reimbursements, tax credits, etc. from whatever source that contractors receive for any COVID-19 Paid Leave costs should be treated in a similar manner and disclosed to the government. (Updated: April 24, 2020)

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Other Agency Guidance

• Several agencies have provided 3610 guidance:

+ Intelligence Agencies

+Department of Homeland Security

+GSA

• The level of detail contained in guidance varies significantly by agency.

• Most guidance requires contractor certification that the contractor has maintained adequate documentation including evidence that reimbursement requests satisfy statutory requirements

• All guidance identifies credits under FFCRA and CARES Act (i.e., No Double Dipping)

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Polling Question

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PPP Flexibility Act

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Paycheck Protection Program Flexibility Act

• The Paycheck Protection Program Flexibility Act of 2020 will make significant changes to SBA’s Paycheck Protection Program, including:

+Extend the “covered period” under which small businesses can spend the loan proceeds from eight weeks to 24 weeks or until December 31, 2020.

+Remove the limits on loan forgiveness for small businesses that were unable to rehire employees, hire new employees, or return to the same level of business activity as before the virus.

+Expand the 25% cap to use PPP funds on nonpayroll expenses, such as rent, mortgage interest, and utilities, to 40% of the total loan, which lowers the 75% requirement for payroll expenses to 60% to get maximum forgiveness.While the new law states that if you fail to spend 60% on payroll you lose ALL forgiveness, a June 8th Joint Statement by the SBA and Treasury leadership

said at least partial consideration for forgiveness – guidance to come.

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Paycheck Protection Program Flexibility Act cont.

+ Allow small businesses to take a PPP loan and also qualify for a separate, recently enacted tax credit to defer payroll taxes, currently prohibited to prevent “double dipping.”

+ Extend the loan terms for any unforgiven portions that need to be repaid from two years to five years, at 1% interest.

+ Give small businesses more time to rehire employees or to obtain forgiveness for the loan if social-distancing guidelines and health-related actions from the Centers for Disease Control and Prevention or other agencies prevented the business from operating at the same capacity as it had before March 1, 2020.

+ Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

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Polling Question

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The Forgiveness Application

SBA Form 3508

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Forgiveness Application Released

• Application Source: https://www.sba.gov/document/sba-form--paycheck-protection-program-loan-forgiveness-application

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Covered Period or Alternative Payroll Covered Period

• Two coverage periods: “Alternative Payroll Covered Period” or “Covered Period”

• If biweekly (or more frequent) payroll schedule:

+ Can utilize ‘Alternative Payroll Covered Period’ which begins on first day of first pay period following PPP loan disbursement date

+ Example (assuming biweekly payroll):

• PPP loan proceeds received Monday, 4/20/20

• Sunday, 4/26/20 is first day of its first pay period after the disbursement date where payroll costs were incurred.

• ‘Alternative Payroll Covered Period’ is 4/26/20 and last day is 6/20/20

• If electing Alternative, apply it to all areas where it references the alternative covered period on the application

• The original ‘Covered period’ remains 4/20/20 to 6/14/20 for non-payroll cost

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Payroll Costs - Paid and Incurred

• Payroll costs paid and payroll costs incurred are forgivable

+ Paid - check distributed or ACH transaction initiated

+ Incurred - employee’s pay is earned

• At end of 8-week period: Payroll costs incurred, but not paid, are included in forgiveness amounts if paid before or on the next regular pay date

• $15,385 maximum forgivable ($100k annualized)

• Summary of coverage period:

+ Beginning – cash basis

+ End – accrual basis

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Salary/Hourly Wage Reduction– PPP Schedule A Worksheet

• Table 1 (<$100k non-owner employees)+ Employed during Covered Period or Alternative Payroll Covered Period & US

residents+ 2019 annualized pay less than $100k

• Gross wages less than $100k and• All pay periods in 2019 annualized less than $100k

+ Proceed to compensation reduction calculations• Table 2 (> $100k non-owner employees)

+ Employed during Covered Period or Alternative Payroll Covered Period & US residents

+ 2019 Annualized pay more than $100k• Gross wages more than $100k or• Any pay period in 2019 annualized to more than $100k

+ No need to compute compensation reduction calculations

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Salary/Hourly Wage Reduction

• Step 1: Was pay reduced by more than 25%?

+(a) Avg annual salary/hourly wage during Covered Period or Alternative Payroll Covered Period

+ (b) Avg annual salary/hourly wage 1/1/20 to 3/31/20

+1(c) = 1(a) divided by 1(b) = Proceed to Step 2 if < 75%

• Note: Hourly appears to be based upon hourly rate – if rate has not decreased more than 25%, then no further steps required

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Salary/Hourly Wage Reduction Safe Harbor

• Step 2: Determine if Safe Harbor is met. (previous reduction in compensation and compensation restored as of 6/30/20)

• Compensation reduction is not applicable if BOTH occur:

+Compensation as of 2/15/20 (2(a)) is lower than the average compensation from 2/15/20 to 4/26/20 (2(b)) AND

+Compensation restored as of 6/30/20 (2(c)) to greater than or equal to 2/15/20 compensation

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Salary/Hourly Wage Reduction Calculation

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FTE Calculation – How to calculate

• Two methods allowed (borrower’s choice):

• 40 Hours Method:

+ Hours divided by 40

+ Capped at a maximum of 1.0 for each employee

+ Total rounded to nearest tenth

• Alternative method:

+ 1.0 for employees who work 40 or more hours/week

+ 0.5 for employees who work less than 40 hours/week

+ Total rounded to nearest tenth

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FTE Reduction Safe Harbor

•Safe Harbor allowed if previous reduction in FTEs and FTEs restored at later date

•FTE reduction is not applicable if BOTH occur:

+FTEs as of 2/15/20 is higher than FTEs as of 4/26/20 (average FTE per week between 2/15/20 to 4/26/20) AND

+FTEs restored by 6/30/20 to levels of 2/15/20 pay period FTE count

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FTE Reduction Exceptions

• FTE reductions are restored if good-faith, written offer made for any employee who:

+ Employee who was laid off (FAQ #40) (layoff does not have to occur within covered period)

• Note if this employee rejects the offer the IFR states the borrower needs to report the rejection to the state unemployment agency

• FTE reductions are restored for any employee:

+ Fired for cause or

+ Voluntarily resigned or

+ Voluntarily requested and received reduction in hours

+ Restoration is complex computation

• FTE reduction is not restored if the FTE’s position was filled by a new employee

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Nonpayroll Costs

•Nonpayroll costs

+Paid during the covered period, or

+Incurred and paid on or before the next regular billing date (even if billing date is after covered period)

•Summary of coverage period:

+Beginning – cash basis

+End – Accrual basis

+Covered Period (Alternative Payroll Covered Period not allowed)

• It is possible to have two different 8-week coverage periods in the overall forgiveness computation

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Ordering of the Forgiveness Reduction Provisions

•Step 1 (line 6)– Compensation reduction test

•Step 2 (line 8) – FTE reduction test (net forgiveness amount after the compensation reduction is multiplied by the FTE reduction quotient)

•Step 3 (line 10)– 75/25 test

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SBA Interim Final Rules

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Interim Final Rules

• The SBA has issued 14 Interim Final Rules (IFR) regarding the PPP program. The following four provide guidance and insight into the PPP Loan Forgiveness:

+ IFR 1 – Initial guidance - This initial guidance provided by the SBA contained general guidance about the PPP and forgiveness

+ IFR 3 – Additional Eligibility Criteria - Provides guidance for individuals with self-employment income (Schedule C – Form 1040)

+ IFR 13 – Loan Forgiveness - Provides guidance on the loan forgiveness process, defines payroll and nonpayroll costs that are eligible for loan forgiveness, describes reduction to loan forgiveness amounts and documentation requirements.

+ IFR 14 – Loan Review Procedures & Borrower/Lender Responsibilities - States that the SBA may review individual PPP loans to ensure that “proceeds are used for the purposes Congress required, including the CARES Act’s central purpose of keeping workers paid and employed.”

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Polling Question

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Questions?

[email protected]

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Thank You!

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About DHG Government Contracting AdvisoryDHG has an extensive Government Contracting Advisory practice comprised of former DCAA auditors with many years of DCAAaudit experience, as well as other professionals with significant experience in government contracts. As a result, our industryfocused professionals provide advice to our clients in all aspects of finance, accounting and compliance associated withgovernment contracting. Our team delivers comprehensive regulatory compliance solutions to a broad range of contractors fromthe largest to the smallest. You will find an effective combination of expertise from these practice areas as permitted byindependence standards.

Praxity AISBL is a global alliance of independent firms. Organized as an international not-for-profit entity under Belgium law, Praxity has its executive office in Epsom. Praxity – Global Alliance Limited is a not-for-profit company registered in England and Wales, limited by guarantee, and has its registered office in England. As an Alliance, Praxity does not practice the profession of public accountancy or provide audit, tax,consulting or other professional services of any type to third parties. The Alliance does not constitute a joint venture, partnership or network between participating firms. Because the Alliance firms are independent,Praxity does not guarantee the services or the quality of services provided by participating firms.

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Polling Question

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2020-06 - PPP Forgiveness - Part Deux-Final · 2020-06-10 · Microsoft PowerPoint - 2020-06 - PPP...

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