New SBA Guidance on PPP Loan Forgiveness Related to Laid-Off Employees

Posted · Add Comment

The SBA issued additional guidance related to the Paycheck Protection Program (PPP) loan forgiveness reduction calculations, adding three new questions and answers (#40-42) to its PPP FAQs.

Laid-Off Employees

The FAQ with the widest reach (#40), addresses how PPP loan borrowers should handle employees who have been recalled to work after a layoff but refuse to return. According to the guidance, businesses finding themselves in this situation can exclude laid-off employees from loan forgiveness reduction calculations if the employer/borrower offers to rehire the employee (at the same salary/wage rate and the same number of hours as prior to the layoff), and the employee turns down the offer to be rehired.

To garner this exclusion, the employer/borrower must make the offer for re-employment in good faith and in writing. It will also be necessary for the employer/borrower to fully document the employee’s rejection and decision to not accept the offer for rehire. It is expected that the SBA, in consultation will Treasury, will issue a new “interim final rule” containing this provision.

The new FAQ warns that employees could be banned from receiving unemployment benefits if they turn down a re-employment offer.

Seasonal Employees

The second new FAQ (#41) provides the certification requirements for seasonal employers and indicates that they must make all of the certifications on the Borrower Application Form if they elect to use an alternative 12-week base period as allowed under the interim final rule released on April 27, 2020. This form requires applicants to certify that “the Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted.” An applicant that is otherwise in compliance with applicable SBA requirements, and that complies with the Treasury’s interim final rule on seasonal workers, will be deemed eligible for a PPP loan under SBA rules.

Not-for-Profit Hospitals

The final new FAQ (#42) provides clarification as to whether not-for-profit hospitals that are exempt from taxation under Sec. 115 of the Internal Revenue Code qualify as “nonprofit organizations” under Section 1102 of the CARES Act. The guidance notes that the CARES Act defines the term “nonprofit organization” as “an organization that is described in section 501(c)(3) of the Internal Revenue Code of 1986 and that is exempt from taxation under section 501(a) of such Code.”

Further, “the Administrator, in consultation with the Secretary of the Treasury, understands that nonprofit hospitals exempt from taxation under section 115 of the Internal Revenue Code are unique in that many such hospitals may meet the description set forth in section 501(c)(3) of the Internal Revenue Code to qualify for tax exemption under section 501(a), but have not sought to be recognized by the IRS as such because they are otherwise fully tax-exempt under a different provision of the Internal Revenue Code.”

As a result, the SBA confirms that it will “treat a nonprofit hospital exempt from taxation under section 115 of the Internal Revenue Code as meeting the definition of ‘nonprofit organization’ under section 1102 of the CARES Act if the hospital reasonably determines, in a written record maintained by the hospital, that it is an organization described in section 501(c)(3) of the Internal Revenue Code and is therefore within a category of organization that is exempt from taxation under section 501(a).”

Final Thoughts

Although these new FAQs provide some further clarification on some issues, we continue to await final guidance on a number of other matters related to PPP loan forgiveness. We will continue to post updates as developments become known. In the interim, should you have questions or comments, please contact Bob Grossman or Don Johnston or your GYF Tax Executive at 412-338-9300.

Related posts:

IRS Says No Double-Dipping on Expenses Related to PPP Loans

Paycheck Protection Program Loans – Round 2

FAQs Issued to Further Clarify Guidance on PPP Loans

Paycheck Protection Program Loans (PPP) Available Under the CARES Act