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Parsing PPP Rules Yields More Questions on What Costs Count

Posted on May 28, 2020

A subtle language shift in the latest guidance on the Paycheck Protection Program (PPP) suggests the government may be taking a more expansive view of which payroll costs are eligible for the program’s tax-free forgivable loans.

The PPP statute states that payroll costs incurred and paid during the eight-week period covered by the loan are eligible to be forgiven, but new interim final rules from the Small Business Administration issued May 22 tweaked the language to refer to costs “paid or incurred.”

“So it appears, based on that, that if you pay these payroll costs during the eight weeks, you might be able to get forgiveness for those, even if they were incurred outside of the eight weeks,” Brandon L. Ketron of Gassman, Crotty & Denicolo PA said on a May 27 webinar sponsored by Leimberg Information Services Inc.

Ketron offered the example of a taxpayer whose payroll ended April 24 and wasn’t able to pay its employees at the time, but then received its loan on May 1. The new rules seem to indicate that if the employer then paid its employees for wages that were past due, those funds would be eligible for forgiveness, since they were paid during the covered period, even if the cost was incurred before the period began, he said.

“Best-case scenario: You do get forgiveness. Worst-case scenario: It’s not forgiven, but it still seems like a permissible use of the funds, so there’s not going to be any penalties,” Ketron said.

Ketron also wondered whether, on the other end of the covered period, a taxpayer could prepay a week that comes after the eight-week period.

“So there’s some potential that we’ll get some additional weeks of payroll just outside of the eight weeks that are covered, but it’s not entirely clear whether or not that will apply,” Ketron added.

Maybe, Maybe Not

However, Kevin A. Cameron of C&L Value Advisors LLC said he was less certain about the SBA’s intentions.

“I think SBA keeps confusing us with each additional issuance of guidance,” Cameron said, noting that the loan application and instructions issued May 15 already allow taxpayers to use an alternative payroll covered period that lets them align the covered period with their own payroll period.

“Why offer the alternative payroll covered period at all if they’re going to allow you to count any payroll paid within an eight-week period, whichever eight-week period you pick?” Cameron wondered.

Cameron further noted that the guidance states that payroll is earned by an employee on the day the employee works, so payment in advance for work that is still to be done after the covered period “seems a little questionable.”

As for payment of payroll in arrears, like including 10 days’ worth of payroll because the payroll date fell right after the loan start date, that “might be a little easier to get through,” Cameron said.

Ketron observed that the loan application, like the statute, refers to costs “paid and incurred” during the covered period.

“So you can see the back and forth that we’re struggling with here,” Ketron said. “It’s just really unclear what in the world they mean as far as when these costs can be counted and when they can’t be,” he said, adding that he hoped an FAQ would soon resolve the issue.

Follow Jonathan Curry (@jtcurry005) on Twitter for real-time updates.

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