Legislation
President Trump on June 5 signed into law a measure that provides additional flexibility for small businesses under the Paycheck Protection Program. The U.S. Senate had approved the bill by voice vote on June 3, and the U.S. House of Representatives passed it on May 28 by a 417-1 vote.
The Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) modifies provisions related to the forgiveness of loans made to small businesses under the program implemented in response to COVID-19. The legislation would:
- establish a minimum maturity of five years for a paycheck protection loan with a remaining balance after forgiveness;
- extend the expense forgiveness period from 8 weeks to 24 weeks during which a loan recipient may use such funds for certain expenses while remaining eligible for forgiveness; and
- raise the non-payroll portion of a forgivable covered loan amount from 25% to 40%.
H.R. 7010 also extends the period in which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a paycheck protection loan, though the forgivable amount must be determined without regard to a reduction in the number of employees if the recipient is either:
- unable to rehire former employees and unable to hire similarly qualified employees; or
- unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
The bill revises the deferral period for paycheck protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness get 10 months from the program's expiration to begin making payments.
The bill also eliminates a provision that makes a paycheck protection loan recipient who has such indebtedness forgiven ineligible to defer payroll tax payments.
During the Senate’s consideration of H.R. 7010, a Statement for the Record was issued by Sens. Mike Lee (R-UT), Marco Rubio (R-FL), Ron Johnson (R-WI) and Ben Cardin (D-MD), along with Reps. Dean Phillips (D-MN) and Chip Roy (R-TX), clarifying that the extension of the covered period defined in section 1102(a) of the CARES Act should not be construed so as to permit the SBA to continue accepting applications for loans after June 30, 2020. “Our intent and understanding of the law is that, consistent with the CARES Act as amended by H.R. 7010, when the authorization of funds to guarantee new PPP loans expires on June 30, 2020, the SBA and participating lenders will stop accepting and approving applications for PPP loans, regardless of whether the commitment level enacted by the Paycheck Protection Program and Health Care Enhancement Act has been reached,” they stated.
Additionally, the legislation does not address the IRS’ recent interpretation denying deductions for otherwise deductible expenses under the loan forgiveness of the PPP, which faced pushback by the chairmen of the congressional tax-writing committees. Nor does it add any new funding to the program.
The legislation now heads to President Trump for his expected signature.
Rep. Richard Neal (D-MA), who is chairman of the House Ways and Means Committee, said in a June 3 webinar sponsored by Tax Analysts that he intends to clarify in the next stimulus bill that the loan forgiveness expenses are tax deductible.
Neal also indicated that he plans to meet later this week with Treasury Secretary Steven Mnuchin to continue negotiations on another stimulus bill to address the COVID-19 pandemic. Those negotiations are still in the early stages, however.
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