SBA Issues Interim Final Rule on New Changes to Paycheck Protection Program

(Parker Tax Publishing February 2021)

The Small Business Administration issued an interim final rule which implements changes related to the forgiveness and review of loans made under the Paycheck Protection Program (PPP), which was originally established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide economic relief to small businesses nationwide adversely impacted by the Coronavirus Disease 2019 (COVID-19), and which was recently extended through March 31, 2021, by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) through March 31, 2021, revising certain PPP requirements, and permitting second draw PPP loans. The interim final rule consolidates prior rules related to forgiveness and reviews of PPP loans and incorporates changes made by the Economic Aid Act, including with respect to forgiveness of second draw PPP loans. SBA-2021-0006.

Background

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (Pub. L. 116 - 136) was signed into law, with the aim of providing emergency assistance and health care response for individuals, families, and businesses affected by the Coronavirus Disease 2019 (COVID-19). The Small Business Administration (SBA) received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID - 19 emergency.

Section 1102 of the CARES Act temporarily permitted SBA to guarantee 100 percent of 7(a) loans under a new program titled the ''Paycheck Protection Program,'' pursuant to Section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)). Section 1106 of the CARES Act provided for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program (PPP). On April 24, 2020, the Paycheck Protection Program and Health Care Enhancement Act (Pub. L. 116 - 139) was enacted to provide additional funding and authority for the PPP.

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116 - 142) was signed into law. The Flexibility Act changed provisions of the PPP relating to the maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans. On July 4, 2020, Pub. L. 116 - 147 extended the authority for SBA to guarantee PPP loans to August 8, 2020.

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) (Pub. L. 116 - 260) was enacted. The Economic Aid Act reauthorizes lending under the PPP through March 31, 2021, and among other things, modifies the PPP, including provisions relating to forgiveness of PPP loans. The Economic Aid Act added a new temporary Section 7(a)(37) to the Small Business Act, which authorizes SBA to guarantee additional PPP loans to eligible borrowers, under generally the same terms and conditions available under Section 7(a)(36) of the Small Business Act, through March 31, 2021. The Economic Aid Act also redesignates Section 1106 of the CARES Act as Section 7A and transfers that section to the Small Business Act, to appear after Section 7 of the Small Business Act.

SBA-2021-0006

On February 5, the SBA issued PPP guidance in interim final rule SBA-2021-0006. In this interim final rule, the SBA (1) provides borrowers and lenders with guidance on requirements governing forgiveness of PPP loans, and (2) informs borrowers and lenders of SBA's process for reviewing loan applications and loan forgiveness applications. The SBA is incorporating and restating the prior interim final rules relating to loan forgiveness and loan reviews and making revisions to conform these prior interim final rules to the amendments made by the Economic Aid Act, including for PPP loans made under Section 7(a)(37) of the Small Business Act.

The following prior interim final rules relating to loan forgiveness and loan reviews are incorporated in SBA-2021-0006: (1) the first interim final rule on loan forgiveness (SBA-2020-0032); (2) the first interim final rule on SBA loan review procedures and related borrower and lender responsibilities (SBA-2020-0033); (3) the interim final rule incorporating Flexibility Act Amendments (SBA-2020-0038); (4) the interim final rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs (SBA-2020-0044); and (5) the interim final rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules (SBA-2020-0052). SBA-2021-0006 also incorporates the forgiveness portions of the interim final rules regarding individuals with self-employment income (SBA-2020-0020 and SBA-2020-0037) and fishing boat owners (SBA-2020-0040).

Practice Tip: According to the SBA, SBA-2021-0006 should be interpreted consistently with the sets of Frequently Asked Questions (FAQs) regarding the PPP that are posted on SBA's and the Department of the Treasury's websites, the consolidated interim final rule implementing updates to the Paycheck Protection Program (SBA-2021-0001) and the interim final rule on second draw PPP loans (SBA-2021-0002). However, the SBA said, the Economic Aid Act overrides any conflicting guidance in the FAQs, and the SBA is revising the FAQs to fully conform to the Economic Aid Act as quickly as feasible.

Most of SBA-2021-0006 restates existing regulatory provisions to provide PPP lenders and new and existing PPP borrowers a single regulation to consult on loan forgiveness and loan review requirements and processes. To enhance the readability of SBA-2021-0006, the SBA has not reproduced the policy and legal justifications for existing regulatory provisions restated in this guidance, except to the extent that those justifications may be helpful to the borrower or lender. However, those justifications from the original interim final rules are adopted in SBA-2021-0006.

According to the SBA, the following six provisions in SBA-2021-0006 are an exercise of rulemaking authority by the Department of Treasury either jointly with SBA or by the Department of Treasury alone: (1) the additional reference period option provided for seasonal employers, (2) the de minimis exemption provided with respect to certain offers of rehire, (3) the de minimis exemption from the fulltime equivalent employee reduction penalty when an employee is, for example, fired for cause, (4) the de minimis exemption from the full-time equivalent employee reduction penalty when the borrower eliminates reductions by December 31, 2020 or, for a PPP loan made after December 27, 2020, the last day of the loan's covered period, (5) the de minimis exemption from the full-time equivalent (FTE) employee reduction penalty for certain PPP loans of $50,000 or less, and (6) the de minimis exemption from the employee salary and wages reduction penalty for certain PPP loans of $50,000 or less. Otherwise, all provisions in SBA-2021-0006 are an exercise of rulemaking authority by SBA alone.

For a discussion of the PPP and discharge of indebtedness rules, see Parker Tax ¶72,340.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com