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BHBM Tax Law Alert | SBA Supplemental PPP Guidance + La. Sales Tax Relief


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FEDERAL TAX LAW UPDATE


SBA Guidance Addressing Loan Forgiveness Requirements

On May 22, 2020, the Small Business Administration (“SBA”), released a supplement (the “Rule“) to the initial Paycheck Protection Program (“PPP”) Interim Final Rule, published on April 2, 2020. The Rule provides clarity with respect to certain provisions of the PPP and the PPP Loan Forgiveness Application, issued on May 15, 2020 (the “Application“), as follows:

Incurred and/or Paid Expenditures

The Rule provides that payroll costs paid or incurred during the eight consecutive week (56 days) covered period are eligible for forgiveness. Specifically, borrowers may seek forgiveness for payroll costs for the eight weeks beginning on either:

i. The date of disbursement of the borrower’s PPP loan proceeds from the Lender (i.e., the start of the covered period); or

ii. The first day of the first payroll cycle in the covered period (the “Alternative Payroll Covered Period”).

Further, the Rule provides the following with respect to when payroll costs are considered paid or incurred:

  • Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction.
  • Payroll costs incurred during the borrower’s last pay period of the covered period or the Alternative Payroll Covered Period are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period (or Alternative Payroll Covered Period) to be eligible for forgiveness.
  • Payroll costs are generally incurred on the day the employee’s pay is earned (i.e., on the day the employee worked).
  • For employees who are not performing work but are still on the borrower’s payroll, payroll costs are incurred based on the schedule established by the borrower (typically, each day that the employee would have performed work).

Payments to Furloughed Employees, Bonuses, and Hazard Pay

The Rule provides that if an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because these payments constitute a supplement to salary or wages, and are thus a similar form of compensation.

Caps on Compensation to Owner-Employees and Self-Employed Individuals

The Rule provides the following with respect to owner-employees and self employed individuals:

  • The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 (15.385%) of 2019 compensation or $15,385 per individual in total across all businesses.
  • Owner-employees are capped by their 2019 employee cash compensation, retirement, and health care contributions.
  • Self-employed individuals filing Schedule C are capped at owner compensation replacement income from 2019.
  • General partners are limited to their 2019 net earnings from self-employment, reduced by section 179 deductions, unreimbursed partnership expenses, and depletion from oil and gas properties, multiplied by 0.9235.
  • Self-employed individuals, including general partners, may not receive forgiveness for retirement or health insurance contributions.

Non-payroll Costs

The Rule confirms that non-payroll costs are eligible for forgiveness if they are:

i. Paid during the covered period, or

ii. Incurred during the covered period and paid on or before the next regular billing date.

In addition, the Rule provides the following example with respect to non-payroll costs:

Example: A borrower’s covered period begins on June 1 and ends on July 26. The borrower pays its May and June electricity bill during the covered period and pays its July electricity bill on August 10, which is the next regular billing date. The borrower may seek loan forgiveness for its May and June electricity bills, because they were paid during the covered period. In addition, the borrower may seek loan forgiveness for the portion of its July electricity bill through July 26 (the end of the covered period), because it was incurred during the covered period and paid on the next regular billing date.

Prepayments of Mortgage Interest

The Rule provides the following with respect to payments made in connection with mortgage obligations:

  • Advance payments of interest on a covered mortgage obligation are not eligible for forgiveness.
  • Payments of principal are not eligible under any circumstances.

Reductions to Loan Forgiveness Amount

  • Under the PPP, eligible loan forgiveness amounts are subject to reductions if the borrower does not maintain the number of full-time equivalent employees (“FTE”), subject to certain exceptions.
  • The Rule confirms that if an employee’s salary or wages were reduced between February 1, 2020 and April 26, 2020, or if a borrower reduces its FTEs during the same period, and then the borrower eliminates those reductions by June 30, 2020, the borrower is exempt from any reduction in loan forgiveness that would otherwise be required.
  • The Rule restates the prior regulatory exception in which reductions in loan forgiveness are waived where the borrower makes a good faith, written offer to rehire (or restore hours for) an employee during the applicable eight-week period, and the employee rejects that offer.
  • However, an additional requirement applicable to this exemption is set forth in the Rule, which is that the borrower must inform the state unemployment office of the employee’s rejected offer of employment within 30 days of such rejection.

Full-Time Equivalents

The Rule provides the following with respect to FTEs:

  • Defines a FTE as an individual who works 40 hours or more each week.
  • The Rule follows the Application in providing that employees who work 40 hours or more each week are limited to an FTE quotient of 1.0.
  • For employees who work less than 40 hours per week, the borrower may calculate the average number of hours paid per week divided by 40, or the borrower may use an FTE equivalency of 0.5 for each employee.
  • The chosen method must be applied consistently to all employees in all relevant periods.

Salary/Hourly Wage Reductions

  • The Rule restates the prior guidance in that a reduction in an employee’s (including each new employee in 2020 and each existing employee who was not paid more than the annualized equivalent of $100,000 in any pay period in 2019) salary or wages in excess of 25% of his or her salary or wages between January 1, 2020 and March 31, 2020, will generally result in a reduction in the loan forgiveness amount equal to the amount of salary or wage reduction in excess of 25% of the employee’s base salary or wages.
  • However, the Rule states that salary/hourly wage reductions will only be taken into account if they are not attributable to an FTE reduction.

Fired for Cause/Resignations/Voluntary Reductions

  • The Rule provides that when an employee is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period or the Alternative Payroll Covered Period (an “FTE Reduction Event”), the borrower may count such employee at the same full-time equivalency level before the FTE Reduction Event when calculating the FTE reduction penalty.

Such employees are exempt from the calculation of the FTE reduction penalty.

SBA Guidance Addressing Loan Review Procedures

On May 22, 2020, the Small Business Administration (“SBA”), released an additional supplement (the “Second Rule“) to the initial Paycheck Protection Program (“PPP”) Interim Final Rule, published on April 2, 2020. The Second Rule provides guidance to borrowers and lenders concerning the SBA’s review process under the PPP, as follows:

SBA Review Authority

The Second Rule provides that the SBA:

  • May review any individual PPP loans that it deems appropriate.
  • May undertake a review of any loan of any size in its discretion.

Borrower Representations and Statements

The Second Rule provides that the SBA is authorized to review the following in connection with the PPP:

  • Borrower Eligibility: Whether a borrower is eligible for the PPP loan based on the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the rules and guidance available at the time of the borrower’s PPP loan application, and the terms of the borrower’s loan application.
  • Loan Amounts and Use of Proceeds: Whether a borrower calculated the loan amount correctly and used loan proceeds for the allowable uses specified in the CARES Act.
  • Loan Forgiveness Amounts: Whether a borrower is entitled to loan forgiveness in the amount claimed on the borrower’s Loan Forgiveness Application.

If the SBA identifies that the borrower may be ineligible for a PPP loan in general or ineligible to receive the requested forgiveness amount, the SBA may require the lender to obtain additional information from the borrower, or the SBA may request information directly from the borrower. The SBA will consider all additional information from the borrower in completing its analysis.

Lender Review

The Second Rule provides that each lender is required to:

1. Confirm receipt of the borrower certifications in the application;

2. Confirm receipt of documentation to aid in verifying payroll and non-payroll costs;

3. Confirm the borrower’s calculations on the loan forgiveness application (including cash compensation, non-cash compensation, and compensation to owners, as well as non-payroll costs) by reviewing the documentation submitted with the application, and

4. Confirm that non-payroll costs do not exceed 25% of the loan forgiveness request.

In addition, please note that the Second Rule provides the following with respect to a lender’s review process:

  • That providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower.
  • Lenders are expected to perform a good-faith review, in a reasonable time, of the borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness.

Lender Timeline

  • The lender must issue a decision to the SBA on a loan forgiveness application no later than 60-days after receipt of a complete loan forgiveness application from the borrower.
  • That lender’s decision may take the form of an approval (in whole or in part); denial; or (if directed by the SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought.
  • In the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its application for loan forgiveness, unless the SBA has determined that the borrower is ineligible for a PPP loan.
  • Within 30-days of receiving notice from the lender, a borrower whose application has been denied may request SBA review of the lender’s decision.

SBA Review Process

  • The SBA may review a PPP loan of any size at any time but must notify the lender in writing, and the lender must notify the borrower within 5 business days.
  • In addition, within 5 business days, the lender must transmit the initial application and all supporting documentation as well as the loan forgiveness application and all supporting documentation to the SBA.
  • Further, the lender must request that the borrower submit the Schedule A Worksheet, and the lender must submit the worksheet to the SBA within 5 days of receipt.
  • Finally, the lender must also submit a signed and certified transcript of account, a copy of the PPP loan document, and any other related documents requested by the SBA.

 

LOUISIANA TAX LAW UPDATE

 

Louisiana Department of Revenue Provides State Sales Tax Relief to Filers for March and April 2020 in Revenue Information Bulletin No. 20-012

On May 22, 2020, the Louisiana Department of Revenue (“DOR”) released Revenue Information Bulletin No. 20-012 to grant relief to state sales tax filers for the March and April 2020 state sales tax periods and to provide clarification regarding notices relative to the February 2020 state sales tax period. As a caveat, the DOR’s relief provisions are not applicable to any city or parish sales tax that may be due for such periods.

March and April 2020 State Sales Tax Periods

The March and April 2020 state sales tax returns and payments were due April 20 and May 20, 2020, respectively. In light of the ongoing COVID-19 public health emergency, the DOR will grant automatic penalty relief to taxpayers who missed those dates if certain conditions are satisfied:

A. The taxpayer must file the March and April 2020 state sales tax returns and remit the sales tax and any deficiency interest by June 30, 2020; or

B. If a taxpayer is unable to remit the sales tax and any deficiency interest by June 30, 2020, penalty relief will be granted if the taxpayer submits and enters into an Installment Request for Business Taxes by June 30, 2020. Taxpayers may submit an Installment Request for Business Taxes by completing and mailing in Form R-19027 or by applying online through the Louisiana Taxpayer Access Point online system.

For the March 2020 state sales tax period, the DOR has sent self-assessment bills to taxpayers who filed a March 2020 state sales tax return but did not remit all tax shown due on the return, but taxpayers are not required to pay the penalties shown on the notice if they satisfy one of the above-described conditions.

February 2020 State Sales Tax Period

The DOR previously provided in Revenue Information Bulletin 20-008 that February 2020 state sales tax returns payments were extended from March 20, 2020, to May 20, 2020. In Bulletin No. 20-012, the DOR now states that if a taxpayer receives any collection type notice resulting from an unfiled February 2020 state sales tax return, the taxpayer may disregard this notice because such notices have been voided in the DOR’s records and no action is necessary by the taxpayer.

To visit our COVID-19 Business Resource Center, including our previous Tax Law Alerts, click here.

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