PPP Update #13 – Revised Forgiveness Guidance: New IFRs and Applications

Posted on Thu, Jun 18, 2020 ©2021 Drucker & Scaccetti

PPP Stuff

As guidance in this area is being released regularly, we recommend you read all of our blogs on this subject.  All the blogs in the Paycheck Protection Program series are here: #1, #2#3#4#5#6#7,#8,#9,#10,#11,#12,#13, #14, #15#16#17, #18,

#19, #20, #21, #22, #23




Since our last blog, the Treasury issued two additional Interim Final Rules (the 18th and 19th), revised the original loan forgiveness application for changes made by the Paycheck Protection Flexibility Act (PPFA), and issued a new EZ loan forgiveness application. If you are up to date with our blogs, we are starting to compare the Paycheck Protection Program (PPP) to extra-innings in the longest baseball game ever recorded. It is now inning 19, two full games have been played, the only fans in the stands are the super-fans (nerdy tax advisors and weary borrowers), and the Treasury just hit a 2-out single with nobody on base.


19th Interim Final Rule (IFR)

On June 17, self-employed borrowers were gifted the 19th IFR that provides insight into how the PPFA will be applied to self-employed individuals and partners in partnerships.  While the guidance is specific to the aforementioned borrowers, a review of the new forgiveness applications demonstrates the changes outlined in the 19th IFR essentially apply to owners of all businesses.


Specifically, the 19th IFR revised the 3rd IFR, previously discussed in PPP Update #5, for changes made by the PPFA.  Many of the revisions are the same as those outlined in our PPP updates #11 and #12.  Here, we address the new information garnered from the 19th IFR.


  1. Payroll Costs for Employees – Based upon the covered period chosen, the $100,000 of annualized compensation per employee is limited to either (1) $46,154 if the new default 24-week covered period is chosen or (2) $15,385 if the original 8-week covered period is elected for loans made before June 5, 2020. The 19th IFR is consistent with prior guidance indicating employer paid health care, retirement benefits and state/local unemployment taxes for employees are not subject to the limits and a are a direct add-on to Payroll Costs.


  1. Owner Compensation Replacement – Similar to Payroll Costs for employees, owner compensation replacement eligible for forgiveness is dependent upon whether the default 24-week covered period is applied or if the original 8-week covered period is elected. As noted below, the intent remains to limit overall owner compensation to 2019 amounts to prevent owners from increasing their compensation to garner larger loan forgiveness, or at the expense of their employees.

a)  24-week default covered period – Limited to the lesser of 2.5/12 of 2019 net profit or $20,833.


 b) 8-week elected covered period – Limited to the lesser of 8/52 of 2019 net profit or $15,385.


The 19th IFR also revised the wording of the 6th IFR for changes made by the PPPFA by replacing “8-week covered period” with “covered period”.


18th Interim Final Rule (IFR)

The 18th IFR address a matter previously raised by many commentators relative to prior criminal records.  In short, the 18th IFR provides a 5-year look-back for owners of 20% or more of a business for financial related felonies (fraud, bribery, embezzlement, or a false statement in a loan application for federal financial assistance) with a 1-year look-back for all other felonies.


Revised Forgiveness Application

For a refresher on the original loan forgiveness application, see PPP Update #9.


New Changes:


  1. Application and Instructions Divided - The application and instructions were separated into two separate documents. You can find the application here and the instructions here.  You will need both as you work through the application.


  1. Owner-Employees Compensation - The forgiveness limitations for “owner” compensation discussed above are specific to self-employed individuals and partners in partnership, but also apply to owner-employees of C and S corporations. The nuance is that in determining the compensation limits, the owner-employees can add in the employer paid health insurance, retirement plan contributions and state/local unemployment taxes paid if the amounts are not already included in the regular compensation.  See the Instructions for PPP Schedule A lines 6 through 9 for additional details.


  1. Full-Time Equivalent Safe-Harbors No Longer Hidden – Previously, the forgiveness application mentioned the available safe-harbors either on the form or in the instructions but not in both. The revised forgiveness application PPP Schedule A has a new Full-Time Equivalent (FTE) Reduction Calculation section that outlines the available safe harbors to avoid a reduction in loan forgiveness resulting from a reduction in FTEs.  FTE Reduction Safe Harbor 1 was added by the PPFA.  Remember to account for FTE exceptions outlined in the Instructions for PPP Schedule A Worksheet when performing any FTE related calculations.


  1. Covered Period Limitation – The Instructions for PPP Loan Forgiveness Calculation Form make it clear that in no event may the covered period extend beyond December 31, 2020. This has the potential to reduce the 24-week covered period to a shorter period but we see this as remote unless a borrower applies at the last minute and the bank/SBA take an excessive amount of time to disburse the loan.


What’s Next


A Wave of FAQs on the Horizon

We are aware that Treasury and SBA are working on approximately 30 frequently asked questions (FAQs) which are expected to be released “soon.”  Rather than address the issues and unexpected changes found within the revised forgiveness application today, we are reserving our comments for these anticipated FAQs with cautious optimism that they will resolve many of the existing issues we have identified.  Once this large batch of FAQs are released, we will provide further analysis of what questions are answered and what questions may remain.  Even if they FAQs do not encompass all open questions (because it is unlikely, they will cover everything), we anticipate they will provide long awaited insight for all loan forgiveness applicants.


Not So Easy

SBA recently issued a streamlined form meant to simplify forgiveness applications for many borrowers.  The EZ application applies to borrowers who are not required to reduce forgiveness for FTE or salary reductions.  In a separate blog we will address why the PPP Loan Forgiveness Application Form 3508EZ is not as easy as it could (or should) be.   Instructions for the EZ Form can be found here.


We will continue providing PPP updates when relevant information becomes available.  If you have questions about how to navigate the PPP Forgiveness Application process, or how other CARES Act incentives may apply to your business, please call on us.  You can stay up to date on PPP guidance and tax issues relating to the coronavirus at our COVID-19 Tax Resource Center.

Topics: ACA, partnerships, self-employed, Treasury, coronavirus, COVID-19, CARES Act, payroll costs, loan forgiveness, Paycheck Protection Program, PPP Loan, Interim Final Rule, paycheck protection flexibility act, 24-week, 8-week, Forgiveness Application

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